Public Bill Committee

[Mr James Gray in the Chair]

James Gray: I welcome the Committee back after what I hope were informative evidence sessions on Tuesday. We now come to the detailed consideration of the Bill. Perhaps everyone is extremely well informed, but, just in case, it may help those who may not be particularly familiar with Public Bill Committees if I run through quickly how the debates will work.
In front of you is the Chair’s provisional selection of amendments, which is how the amendments have been selected and grouped for debate. By and large, the grouped amendments will be on similar subjects. The Member who put his or her name to the leading amendment is called first. The debate then continues in a backwards and forwards, well-balanced way, then the Member who spoke first may wish to wind up the debate. Other Members may also speak more than once in the debate if they catch my eye.
At the end of the debate on a particular group, I will call the Member who moved the lead amendment once again. At that time, that Member will need to indicate whether he or she intends to put the amendment to a vote or, indeed, seek the leave of the Committee to withdraw it, which is equally acceptable. All decisions do not necessarily occur at that moment; they occur at the moment at which the amendment appears on the amendment paper. If that is at a later stage, it will be called formally at that stage and people may vote on it if they wish.
At the end of each series of debates on groups on particular clauses, it may be possible to call a clause stand part debate on whether that clause should stand part of the Bill. Where there has been a fairly full debate on the meat of the clause, it will not be necessary to have a stand part debate—we will simply have a formal Division. On other occasions, if either the Opposition or the Government choose to have a stand part debate, that, normally speaking, is allowable. I hope that that brief explanation was helpful.
One more extremely important matter: the Department has provided copies of the consolidated version of the Water Industry Act 1991, the Water Resources Act 1991 and the Land Drainage Act 1991. A Keeling schedule to the Water Industry Act 1991 is also provided. Should anyone require a copy of those documents—I cannot imagine why they would—they are on the table behind me.

Clause 1  - Types of water supply licence and arrangements with water undertakers

Thomas Docherty: I beg to move amendment 130, in clause1,page1,line11,at end insert—
‘(1A) The Authority may vary a licence to enforce the provisions of section [Exit from the non-household retail market].’.

James Gray: With this it will be convenient to discuss new clause 25—Exit from the non-household retail market—
‘A company granted a water supply licence under section 17A of the Water Industry Act 1991, prior to Royal Assent of this Act, may choose to provide to—
(a) the retail market, or
(b) the wholesale market only.’.

Enables water companies to exit the retail market.

Thomas Docherty: I am most grateful for the opportunity to serve under your chairmanship, Mr Gray. It was a pleasure to serve with you on the Procedure Committee, so it is with some trepidation that I say that I hope I do not fall foul of procedure rules this afternoon—that would be doubly mortifying.
I will speak briefly to the new clause and address the broader points in the lead amendment. This is a technical issue, but it is critical to the operation of the retail market. The Opposition have had dialogue in the past few days with Ofwat, and Members will notice that we have tabled two different new clauses. Obviously, when we come to the votes, we will move the appropriate one. We will have to work with the Minister to ensure that he is content that we propose the right changes to the Water Industry Act 1991.
This debate is about how an effective market should work. I feel slightly embarrassed that I have to lecture Conservative Members of Parliament on how a market operates—slightly less so with the Liberal Democrats.

George Hollingbery: I apologise because I did not quite catch what the hon. Gentleman was saying. He said something about two new clauses and choosing the right one. Humble Back Benchers are not entirely in the loop on that. Please will he explain a little further what that means?

Thomas Docherty: Two new clauses have been tabled. The decision is on which of section 17 and section 6 of the Act is the correct one to amend. That is why there are two.

George Hollingbery: Which are the two new clauses?

Thomas Docherty: I will answer that in a few moments when I receive some inspiration.

James Gray: Order. For the sake of order, the proposals are new clauses 25 and 36.

Thomas Docherty: I was confident, Mr Gray, that I would have some inspiration from a divine source, and there it was.

Dan Rogerson: On a point of order, Mr Gray. I apologise for interrupting the hon. Gentleman. Amendment 130 is grouped with new clause 25. What is the position with the new clause to which the hon. Gentleman has referred? When can we discuss that and how does it interact with today’s debate?

James Gray: The ruling, as I am reliably informed by my learned friend the Clerk, is that new clause 36 was tabled last night and is therefore starred, but could be unstarred if that is the will of the Committee. In other words, it could be debated with this group if that is the will of the Committee. Can I presume that that is the will of the Committee? There being no dissenting voice, I presume it is and, therefore, the Committee can presume that new clause 36 is unstarred and part of this group.

Thomas Docherty: I am most grateful to the Minister for his spirit of co-operation. I hope that, as the afternoon goes on and in future sittings, we will be able to work together in a similar manner.
I feel slightly awkward having to explain to Conservative Members of Parliament how a market works. One would think they understood that. For a market to operate effectively, people must be able to enter and exit. That would seem an obvious thing to know. Some of the finest economic minds, such as the eminent Scot Adam Smith, have been talking about that for 250 years. For an effective market to operate there must be an element of competition. When a company fails to deliver an effective product, it should be able to get out of the market.
We heard compelling evidence on Tuesday, which I will touch on later. Both sides of the debate recognise that an exit must be conducted in an orderly manner. I am sure the Minister has read the Office of Fair Trading report from December 2012, which talked about the orderly exit from a market. I will not read the whole report to the Minister as I know he has a copy and has been briefed on it, but the executive summary states:
“The exit of firms is a vital part of competition.”
The next paragraph states:
“Public markets should be no different.”
Later, it states:
“There is a risk that government responds to failures in public markets by preventing provider exit.”
It is not in anyone’s interest that companies are forced to stay in a market when they have no or very few customers. They are then burdened with an unfair, unrealistic level of red tape, which in turn drives down their profits and crowds out the market. We heard on Tuesday that it could end up with 40 companies chasing just 1.1 million customers.
We agree with the Minister that an orderly exit from the market is required. That is why the Opposition, supported by both regulators—the Water Industry Commission for Scotland and Ofwat—propose that the exit should take place only when the Secretary of State gives express permission in order to avoid a company, a small business, a local authority or a charity being left without a supplier. The Secretary of State would allow that company to stop providing that service only when he or she is satisfied that all its customers had been handed over to another retailer.
That is important for the water companies themselves. As hon. Members have probably detected, I am not the biggest fan of the water companies, so I do not know whose is the greatest chagrin, mine or theirs, but it is interesting that many of them want the exit clause. I accept that not all of them agree—we heard from some of their lobbyists on Tuesday to that effect—but the Office of Fair Trading, Ofwat and WICS call for the exit clause as, of course, does the Select Committee on Environment, Food and Rural Affairs in its report on the draft Bill and its subsequent report. For those hon. Members who have served, or continue to serve, on that Committee, I will not recount the whole history, but the Committee was unanimous in seeing an exit clause as a crucial component of making the market work.
The very limited evidence we heard on Tuesday against allowing an exit clause is disconcerting. I hope the Minister will reflect on my concerns in his response. The first argument that was used—an argument that civil servants tend to cling to—is that we need to prevent exit in order to maintain a vertically integrated water company, where the company is a wholesaler, a retailer and a domestic supplier, because that makes it more viable. It is interesting that neither the regulators nor any water companies agree with that, but, given the evidence we heard from Dr Kenway on Tuesday afternoon on ensuring a level playing field, it is against natural justice that the Department for Environment, Food and Rural Affairs appears to be trying to favour those incumbent water companies. Surely Members on both sides of the Committee can agree that we want the best value for the taxpayer and small businesses, and for new entrants to have no disadvantage in the process. I hope the Minister will clarify that he is not going along with his civil servants, who have been blindly arguing that it is in the vested interests of those incumbent water companies not to allow them to do that.
We heard another argument from Mr Smith of the Consumer Council for Water. To be fair to Mr Smith, he is not opposed to exit, but sceptical. His argument is that exit would prevent cross-subsidisation. Again, one of the key points is that we do not want cross-subsidisation of the two markets. The regulators are clear and I think that the Minister is clear that we do not want cross-subsidisation. I would be grateful if the Minister sets out that he does not agree with the principle of cross-subsidisation between domestic and non-domestic customers.
If new entrants believe there is not a level playing field, it makes it harder for them to have confidence to come into the market. We heard repeated evidence from the obvious new entrants that that is one of the two most critical issues for them, and later this afternoon, assuming that we make enough progress, we should reach the issue of level playing fields more broadly.
To bring my remarks to a close, an orderly exit is a fundamental principle of a free market. It is necessary in order to ensure new entry confidence, it reduces bureaucracy, which I think both sides of the Committee want, and it avoids the ludicrous situation in which, even if water companies have no customers whatever, they are required to have an arm that sits in an office somewhere with a plate claiming to be the retail arm of the water company. It is backed by both regulators, by the Office of Fair Trading, by many water companies and by the Environment, Food and Rural Affairs Committee.

Neil Parish: On this occasion, I find myself somewhat in agreement with the shadow Minister. I very much look forward to what our new, very capable Minister has to say on the matter.
I have said throughout the Select Committee process and elsewhere that there is not enough competition in the Bill so that water companies, especially on the retail side, may come in and out of delivering services, thus creating competition and driving down prices so that there is a much better deal. I am interested in how companies will go into the business if they do not believe they can get out of it successfully, and if there will be a lot of bureaucracy involved in doing that. I am absolutely certain that a great deal of light will be shed on this by our Minister. We need to take the matter seriously because we do need enough competition under the Water Bill.

Dan Rogerson: It is a pleasure to serve under your chairmanship once again, Mr Gray. This is my first opportunity to get that on the record. We served alongside each other examining such issues as members of the EFRA Committee in the previous Parliament. I know that you take a keen interest in water, as well as other issues for which my Department is responsible.
The hon. Member for Dunfermline and West Fife has made his argument in a number of arenas, not least through the line of questioning that he pursued. Amendment 130 would provide Ofwat with a power to make changes to water supply licences to allow the holder to exit from the non-household retail market. It would mean that Ofwat would be able to make the change for licensed water suppliers that operate in the existing water supply licensing regime.
New clause 25 would allow the licensed water supplier to choose whether it wished to provide services in the retail market or the wholesale market, which would mean that the eight licensees in the existing market, and any others that enter the market between now and Royal Assent, may stop providing retail services. Instead, they could just provide upstream services under the existing combined licence to customers that use 5 megalitres of water in the areas of incumbent water companies in England, or 50 megalitres of water in Wales. The hon. Gentleman has also tabled a further new clause that deals with this issue from a slightly different perspective, and that is probably more in line with the argument he made.
Clause 1 and schedule 1 include provisions for the existing combined licence to be unbundled in the areas of incumbent water companies in England, through the issue of separate retail and wholesale authorisations in a water supply licence. The restricted retail and supplementary authorisations preserve the combined licence in the jurisdiction of Welsh Ministers until they commence clause 5 and schedule 5. However, judging by the title of new clause 25, I do not think that early unbundling of the combined licence is what the hon. Gentleman intends. As I said, he has since tabled a further new clause that refers to incumbent water companies.
The Government have made their views on voluntary exits clear. The desire of some incumbent water companies to exit the market is not about making it easier for them to deal with potential discrimination within their organisations. It is about bolstering their subsidiary licensee so that it has a stronger placing in the new market, or about those incumbents that cannot compete in the new markets looking for a way to transfer their non-household customers for a tidy profit. In such circumstances, non-household customers may be forced to move to a new supplier and household customers would be left stranded with an incumbent water company that is not incentivised to invest in retail services.
That key point also reflects the concerns of Mr Smith and the Consumer Council for Water that we heard in our evidence sessions. There were customer service issues for household customers, which is an argument on which I have been persuaded. In this early stage of introducing competition, we want to ensure that companies that are subject to competition, and are therefore improving their retail services to be more competitive, will use their experience to improve the lot of household customers. We do not want to lose this integration, and most of the cross-over benefits identified for household customers in our retail impact assessment could therefore be lost. It was incumbent water companies that warned us about the risks involving planning future resource needs and the effect of dealing with network problems if the wholesale side of the business was cut off from its main customer base.

Thomas Docherty: I am following this with some fascination. The Minister does not sound any more convinced by these arguments from his officials than I am. Will he explain why he wants the new entrants in the first place? If his logic is that domestic customers should not be disadvantaged, what is the point of having companies come in that do not offer services to domestic customers? He is trying to advance a strange argument.

Dan Rogerson: It is not strange at all. It does not ignore the fact that there are millions of residential customers. Obviously new entrants will bring their expertise and will challenge the incumbents on what to provide to businesses, charities and public sector organisations, but we must not forget that we want benefits for residential customers, too. On Second Reading, several Members—they are not members of the Committee—would have been keen to push forward with retail competition in the residential sector now as well. We want benefits for residential customers and consumers.

Neil Parish: I agree with the Minister to an extent, but have not the Government been taken in by the water companies who are a little bit fearful of competition and therefore say, “Please don’t give us too much competition because then the retail sector and the consumers in your constituency may suffer”? We have to be careful that we do not go down just a water companies route.

Dan Rogerson: I thank my hon. Friend for his intervention. As the hon. Member for Dunfermline and West Fife pointed out, some water companies take a different view. I do not think it is as simple as just saying that this is in the interest of the water companies. The key point for me is that we have to consider the interests of all consumers across the sector. I sense that my hon. Friend understands that argument, even if he is keen to press ahead with as much competition as possible.
We heard evidence that incumbents can contract out their retail functions, although ultimately not their legal obligations. The key point is that someone has to be responsible for looking after all customers. With new entrants, licensees can exit whenever they want, so we are focusing particularly on incumbents in this case.

Thomas Docherty: Let us have another go at this. The Minister has just said that he is in favour of new entrants being able to come back out of the market if things do not work, so why is he against the OFT, Ofwat and WICS—all the regulators of competition—which think that his proposal is anti-competitive. Let me just read to the Committee—

James Gray: Order. Perhaps not in an intervention.

Dan Rogerson: I am sure that the hon. Gentleman will make his points when he responds to my argument.
The arguments are focused on the benefits of retail competition that we want for customers in private sector companies, public sector organisations and charities. Competition will bring that about, so we want new people to be encouraged to come into the market. However, as a Government, we also need to have regard to residential customers to whom we are not making that benefit available. We do not believe that this is the appropriate time to do that, and I do not think that the hon. Gentleman suggests that that is a step we should take at this juncture. We therefore have to ensure that we see some of the benefits that the evidence we have received says would accrue to them through changes in customer service, for example.

Thomas Docherty: If I understand the Minister correctly, he is trying to argue that he has concern for the domestic customer, so will he address the point that if the Secretary of State had positively to allow an exit, it would be an orderly exit? That would mean that if the Secretary of State genuinely believed that an exit was not in domestic customers’ interests and would be detrimental to them, he would have the power to block it. Why does not the Minister accept that argument?

Dan Rogerson: The hon. Gentleman seems to be arguing that there would be a barrier to entrants coming into the market. He extols the virtues of a free market, which is what will encourage that entry, but if people looking to invest are of the mindset that a lack of incumbent companies’ ability to exit would represent a barrier, I doubt that they would be reassured by the Department having an ultimate decision on that, as the matter would still be out of their hands.

Thomas Docherty: I appreciate that the hon. Gentleman is a Liberal Democrat, but he is still bound by Government collective responsibility. The Cabinet Office called for the Office of Fair Trading to produce a document and wants orderly exits. Will he explain why he does not want the Secretary of State, under specific circumstances, to have the power to say, “We agree that there is no detriment to our domestic customers. You can now exit the market”?

Dan Rogerson: First, it is about not just detriment, but benefits. I was not making a point about exiting the market being just a choice in terms of disadvantaging customers. There is also a benefit, which is that those companies that remain and focus on retail, and bring competitive elements from other sectors, will learn lessons and improve their performance, thereby offering a better service to household customers. We want that benefit to be retained.
While many organisations supported mandatory separation, many now support voluntary separation, because they know that the impact is much the same. A number of the hon. Gentleman’s questions indicate his concern that the market will not operate, but I do not share his view. He made his focus clear: opportunities for competition in the non-household sectors. It is our determination, however, that we see benefits from savings not just there, but for household companies as well.
Some of these issues can be revisited as the market develops, but the Government believe that the Bill can deliver good outcomes for competition and efficiencies, with some benefit passed back to household customers, who will be watching to see how the market will move forward and how they could benefit. I urge the hon. Gentleman not to press his amendment or new clause to a Division.

Thomas Docherty: As the Minister knows, we cannot press the new clause to a Division today. After three years, I am still genuinely baffled about why civil servants cannot get their heads around the idea of an orderly exit process, underpinned by powers for the Secretary of State if there were to be detriment. Let me move away from detriment a moment to the broader question of the interests of the customer base as a whole. Why cannot they get their heads around that?

Dan Rogerson: The hon. Gentleman is trying to get away from the fact that this is the Government’s position. No doubt he will point out that I came into this process as Minister part way through, but our decision, which was based on the advice we received from the water sector—I accept that there are differing views in the sector—the Consumer Council for Water and others, is based on us wanting benefits for all customers.

Thomas Docherty: I was not going to draw the Minister’s attention to the fact that he changed his mind 30 seconds either side of being made a Minister by the Deputy Prime Minister. As a member of the EFRA Committee, he signed up to a report, which we agreed to unanimously—[ Interruption.]. He chunters that he did not sign up to it, but the formal minutes of the meeting at which the report was considered, which he attended, show that it was agreed to unanimously. We may quibble over whether he signed up to it or voted for it, but the fundamental point is that the Minister’s name is on the Select Committee report, although I was not going to go down that road.

George Hollingbery: I would counsel the shadow Minister to be careful with this line about the Select Committee report. There will doubtless be times in this debate when he is challenged on a similar basis on similar clauses that were not part of the Select Committee report that he could have dealt with but did not at the time.

Thomas Docherty: I am looking forward to finding the section of the Select Committee report where I will dissent. I have laid down a gauntlet there to a number of colleagues to have a good, hard think.
The fundamental point is that the proposed new clause is supported by Ofwat, WICS and the recommendations of the Office of Fair Trading. I will read paragraph 2.7 of the OFT report, for the benefit of the Minister, whose officials, I suspect, have not shown it to him; he may indicate otherwise. The OFT report, which was commissioned by the Cabinet Office, says:
“Competition backed up by the credible threat of exit and failure is more likely to ensure that weak firms exit markets in an orderly fashion, and that robust firms survive. By contrast, if there is a suspicion that authorities will prop up weak firms to ensure service continuity, such firms may be tempted to continue in the market, thereby risking eventual financial or operational failure and disruptive exit.”

Dan Rogerson: I am grateful to the hon. Gentleman for giving way. There are two points. First, as I have sought to demonstrate, after the Bill comes into force there will be two groups of customers: those who are able to take advantage of competition and those who are not. I think that is different. If we are talking about one market for providing a service, it is clear. However, there are two sets of customers and we have to ensure that we look after them.
Secondly, new clause 36 would give powers to the Secretary of State to intervene anyway. If the hon. Gentleman is talking from a pure market perspective, as the OFT report seems to, it would not necessarily give peace of mind.

Thomas Docherty: I am happy to send the Minister a copy of the report, which his officials seem to have withheld from him. He probably should have had a chance to browse through. The OFT report specifically talks about orderly exit and continuity regimes in public markets. That is, it is possible to get out only when the Secretary of State or the regulator is satisfied that there is no detrimental effect. That is why this proposal is crucial, because it would avoid a disorderly exit.
There is a fundamental danger. I take the Minister at face value; I think he is genuinely trying to put the best face on a fairly weak case put by his officials. He talks about damage to customers. If one of the smaller water companies, of which there are many, finds itself with no or very few non-domestic customers and has to fund a fully regulated retail arm, where does the Minister think that money is going to come from, if not from the company’s overall costs? That would have the unintended consequence of forcing bills to remain higher than they should otherwise be for domestic customers. That would be a drain, if you will pardon the pun, Mr Gray, on the water company’s resources.

Dan Rogerson: The hon. Gentleman’s argument assumes that all incumbent companies are bad and will want to get out ultimately. We hope that some of the incumbents will improve the services they offer and become more competitive and stay in the market. We will have a range of options for consumers.

Thomas Docherty: I am not sure how the Minister jumped from what I said to claiming that I thought all the incumbents would fail. Of course they will not. Mr Gray, you will know as a good free marketeer, that there are always winners and losers in any normal, functioning market that is not artificially restrained. Some of the incumbent water companies should do better than others. We must not artificially support failing water companies that do not raise their game. I think we would all agree on that, Mr Gray. I am sure that you have had correspondence from small businesses in your area about the quality of the service that they are currently getting from their water company.

James Gray: I have no view either way on such matters.

Thomas Docherty: You are an expert on the issue, and on many other things. I am sure that the House would agree, and that all Committee members have received correspondence from businesses in their own areas about poor quality of service.
The Minister is right to say that retail competition will make companies raise their game—that is why the Opposition support the principle of retail competition. In fact, we proposed it, because it would appear that we are the true marketeers, unlike the dead state hand of the Government. We want a functioning and vibrant market—[Interruption.] The hon. Member for Tiverton and Honiton says that it is yet to be tested. May I remind him who introduced retail competition in Scotland? It was the Labour-led Scottish Executive. I also gently point out that the Liberal Democrats were part of that coalition.

Neil Parish: The hon. Gentleman makes an interesting point about the situation in Scotland. I agree with him on some points. Scotland has one wholesale company, Scottish Water, so it is far easier to deal with the retail side. The problem in England is that we have so many companies. I do want to see greater competition, but the Scottish and English situations are not exactly the same.

Thomas Docherty: I have a huge amount of respect for the hon. Gentleman, but he knows fine well that those two issues are not interlinked. We will come on to the issue of market codes later on, but I will resist the temptation to get drawn into that argument now. The hon. Gentleman knows that that is a red herring. The issue of retail competition at this point has no impact on whether or not there is one or many upstream providers.
I do not intend to detain the Committee any longer. I hope that the Minister will take the next week and a half to reflect on the issue. I strongly urge him to read the Office of Fair Trading report.

Dan Rogerson: I want to make one more point about the issue I keep raising—household customers. Companies that provide retail services to household customers will need to maintain those services. The picture that the hon. Gentleman is painting—of a little office down at the end of a corridor, with cobwebs and one person with a phone that never rings because they have lost their commercial customer base—does not hold. They will need that arm to look after their household customers.

Thomas Docherty: I do not wish to suggest that the Minister has not quite mastered his brief, but he will know that the proposal is actually that the regulatory requirements for retail customers are going to be slightly different from the regulatory requirements for domestic customers. I know that he did not mean to suggest that they are the same—[ Interruption. ] The Minister is chuntering, which he can do if wants to. I do not wish to detain the Committee on the issue any longer. The Minister has about 10 days before we vote on the new clauses. I strongly urge him to read the OFT report—he might want to ask his civil servants why they did not think it might be advantageous for him to see it. I will let the Committee draw its own conclusions on that.

James Gray: Is the hon. Gentleman seeking to withdraw amendment 130?

Thomas Docherty: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Thomas Docherty: I beg to move amendment 132, in clause1,page1,line14,after ‘authorisation’, insert
‘subject to the provisions set out in section [Abstraction reform].’.

James Gray: With this it will be convenient to discuss new clause 27—Abstraction reform—
‘(1) The Secretary of State may by order (the “commencement order”) appoint a day on which section 1 is to come into force.
(2) The Secretary of State may only make an order under subsection (1) if—
(a) new primary legislation on the licensing of abstraction has been passed; and
(b) five years has expired since the passage of any legislation under paragraph (a).’.

The Secretary of State may not implement upstream reform as set out in the Water Bill, until new primary legislation on the licensing of abstraction has been passed, and five years has expired to allow for its implementation.

Thomas Docherty: I have a sense of déjà vu, Mr Gray. Perhaps it would be helpful if I drew the Committee’s attention to the explanatory statement that I have tabled. I apologise for not saying so earlier, but I have sought to table an explanatory statement for each and every one of our amendments, as the Procedure Committee has recommended. I am slightly disappointed that the Minister has not done the same for all his amendments. Perhaps he could be so good as to explain that when we debate Government amendments later in Committee.
Amendment 132 and new clause 27 concern abstraction reform and upstream competition. I thought we had an excellent debate on Second Reading, which I commend to the House. It was genuinely thoughtful. The hon. Member for Broxbourne (Mr Walker), who chairs the Procedure Committee, made a most interesting speech and talked about chalk streams, of which he is a long-standing champion. The hon. Member for Meon Valley also made an interesting speech on Second Reading, second only to that of the hon. Member for Broxbourne.
We heard evidence on Tuesday—we have all heard it before—that we face a water crisis in the United Kingdom. Despite the weather we are currently enjoying, we are facing drier and drier winters. I did not know until I became a member of the Select Committee—it is amazing what we learn on such Committees—that it is in our interests to have wet winters. We might not think so when we take shelter from the rain, but it is critical that we secure sufficient water from the sky during the winter months to give us adequate supplies during the—somewhat shorter—warmer, drier months.
As the hon. Member for Broxbourne and others have commented repeatedly, there has been no significant construction of a reservoir or a new water facility in England for—the Minister might correct me—40 years. We are heading into a period of what is called water stress in more and more areas, where there is simply not enough water. I am sure we all recall the hosepipe bans. 
I will give the Minister some credit; it is slightly churlish when parties that are not in power accuse the Government of being responsible for droughts. It is fair to say that no Secretary of State can make the rain fall, although I think one or two of them over the years have had delusions that they could. However, Government are responsible for making sure there is a sufficiently robust regime for abstracting water from the ground, from streams, from reservoirs, from lakes and from other parts of the water table. They need to make sure not only that there is enough clean, fresh water for the taps in our houses, for hosepipes and for industry, but that we are not having a seriously detrimental effect on the environment.
The hon. Member for Broxbourne has been a long-standing champion of chalk streams and has talked about the impact on them. I do not intend to talk at length about chalk streams—I think all members of the Committee are familiar with them—but there is clear and compelling evidence that chalk streams are under real threat, because more and more water is being taken out of them.
We had a really good evidence session on Tuesday when we heard about fracking. I shall not get drawn into the merits of fracking, but, as we heard from the Environment Agency, fracking will place an additional burden on the water table. We support the need for licence reform and we believe that upstream reform is necessary. The Minister might have the date to hand, but it is 40 or 50 years since there was licensing reform. Our concern, which I think is shared by Government Members and the Select Committee, is that unless we also do abstraction reform, there is a danger that we will actually make the process worse.
We do not seek to wreck the process. I hope the Minister will accept that we are genuinely trying to be supportive. We welcome the need for upstream reform, but unless we have abstraction reform before we implement upstream reform, we will create a disaster down the road. I think the Minister genuinely wants reform, but I think the civil servants have put it in the “difficult-to-do” box. Without doubt, abstraction reform is difficult, and there are tough choices. Many hon. Members think the solution is to build more reservoirs. There are others who would probably suggest that that is not the environmental way forward. That debate needs to happen and we, as Opposition Members, would welcome that and look forward to working consensually on it. To simply say, however, that abstraction reform is difficult and therefore the Department will not do it is a dereliction of duty. I do not blame the Minister for that; I blame others. I think that he knows who I am talking about.

George Hollingbery: I think I am right in saying that the Department has never said that it will not do abstraction reform. In fact, it has made a real commitment to doing exactly that. The Department has said that that process will be started as soon as possible, but that the Water Bill will have gained Royal Assent before that process is finished. Is that not correct?

Thomas Docherty: Well, our scepticism about the fact that the Department has not exactly been speedy in bringing forward the Bill is shared by Blueprint for Water, which, as the hon. Gentleman knows, is the umbrella organisation for the NGOs. He will be well aware that the Bill has been, if you will excuse the pun, Mr Gray, three and a half years in the pipeline—see what I did there?—and it is unlikely that we will get another water Bill on abstraction reform any time in the near future.

George Hollingbery: While I, like the hon. Gentleman, do not want to be boring about the past three and a half years and how long it has taken for the Bill to come forward, abstraction reform has been required for many decades. I note that nothing was done on it during the 13 years of the Labour Government. Why the sudden urgency?

Thomas Docherty: The urgency comes from the upstream reform. Apologies if I have not spent long enough explaining that. It was clear in the evidence session on Tuesday—I thought the hon. Gentleman was paying close attention and heard it—that water commentators and the NGOs are genuinely concerned that the planned upstream reforms will place far greater stress on abstraction, because they will bring licences into play that, frankly, have not been used.
 Mr Mark Spencer (Sherwood) (Con) rose—

Thomas Docherty: Let me just finish this point, and then I will give way to the hon. Gentleman, who is an expert on many of these things. Blueprint for Water, the WWF and others were concerned that, while the issue needs to be dealt with, this section of the Bill compounds the problem.

Mark Spencer: I hope the shadow Minister will acknowledge that the Bill is not the only tool in the toolbox for solving this problem. DEFRA can do an enormous amount of work with private abstractors to put in winter storage and to abstract water from rivers and aquifers when there is plenty of flow.

Thomas Docherty: I am grateful to the hon. Gentleman. Hopefully, he has not put a trap down for the Minister. Given the nods of approval by his hon. Friends who sit behind him, they expect the Minister to set out exactly what steps are being taken. I welcome that helpful intervention, and I look forward to the Minister setting that out. [ Interruption. ] If the hon. Member for South East Cornwall wants to chunter, I will give way to her.

Sheryll Murray: The hon. Gentleman is being a little disingenuous in assuming what Members on this side of the room are indicating. I, for one, certainly did not nod expecting the Minister to make clear what he intends to do.

James Gray: Order. The hon. Lady is making a perfectly sensible point, but she should not use the word “disingenuous” in relation to hon. Members. She might like to withdraw that word.

Sheryll Murray: I am sorry. I withdraw the word.

Thomas Docherty: I am most grateful for the hon. Lady’s apology and I regard the matter as closed. Returning to my substantive point, we support the principle of upstream reform. We believe, however, that the situation will become worse, unless abstraction reform takes place. New clause 27 would allow DEFRA to proceed, by all means, with upstream reform, but that could not be implemented until abstraction reform had been implemented.

George Hollingbery: It occurs to me that one of the solutions to our long-term water problems is to find new sources of water. It may well be that there are sources out there that no member of the Committee knows about. To proceed with upstream reform as it is right now seems sensible. One can make a business proposition on finding new sources of water and bringing them into the system. The hon. Gentleman may not agree with that supposition, but, if he does, does he think that there is any level of regulation that will protect the supply side, to ensure that there is no environmental damage?

Thomas Docherty: I am grateful for that intervention, and will try not to go out of order, Mr Gray, but perhaps I may draw the attention of the hon. Gentleman to later amendment groupings; he will see that we propose some further regulatory powers to address that point, in part.
As to the first point that he made, about the possibility that there are water supplies that we do not know about, I am reminded of a former US Defense Secretary who talked about known knowns and known unknowns. I think that if I get drawn into the argument, there is a danger that that is where we will end up. It would be great to tap a new water supply in the United Kingdom, but I suspect that after 2,000 years we have a fairly good idea where most of the substantial water sources are. I do not think it would be reasonable to take a big punt on the future of the natural environment by banking on that as the way forward.
I do not want to detain the Committee unduly; other colleagues may want to speak in this important debate. I hope that the Minister will reflect on the evidence that we have heard this week about the concerns of the Environment Agency, and more importantly, of Blueprint for Water, which the Select Committee echoed.

George Hollingbery: It is a pleasure to serve under your chairmanship, Mr Gray. You and the rest of the Committee will be glad to hear that I intend to be brief.
I do not think anyone would suggest that I am not a champion of abstraction reform. I have banged on about it for a considerable time, and, indeed, it was one of the principle demands that came from a chalk stream summit in which I took part, attended by 100 or 200 people at about this time last year in Stockbridge. I hear the right sounds coming from the Government about that.
I gently suggested earlier to the hon. Member for Dunfermline and West Fife that there might be supplies of water that are not yet known to be economic. Perhaps that would have been a better way to put it. Clearly, we will not find any new water in this country, unless we take into account things such as desalination, but there may well be sources that it is not currently economic to transport, or new technologies, which the upstream reforms may allow us to exploit.
My view is that unless we can be 100% certain that the environmental integrity of such sources of water and the places they come from will not be threatened by the new process and the transfer of water, we should not transport the water. It should not be allowed into the system. However, the Minister has listened to the concerns of Members, NGOs and other groups on the issue, and has made changes to the Bill, and tabled new clauses, to require the opinion of the Environment Agency on such matters before any supplies are allowed to be made available.
As long as we can trust Ofwat to listen to the Environment Agency before licensing the supply, and be reassured that it will take its advice, we must get on with trying to exploit such potential new sources of water, or at least create an impetus for looking into them and trying to provide water. It is no longer possible to sit and wait for abstraction reform. We must do something now about supplies of water throughout the country.

Thomas Docherty: Does the hon. Gentleman accept that the purpose of the Opposition amendment is to force a sense of pace? I think we agree on a cross-party basis that there is a need for abstraction reform. The problem is that if we do not make it a condition of the implementation of upstream reform, the officials will not get around to it.

George Hollingbery: I simply do not believe that the Government are not committed to abstraction reform. The previous Minister, my hon. Friend the Member for Newbury (Richard Benyon), with whom I have talked at great length, was absolutely committed to abstraction reform in the short term. I have had the same conversation with the Secretary of State and the current Minister. My understanding is that the Government are absolutely committed to conducting a short-term and a medium-term analysis of the problem, and to finding solutions to make abstraction fit for the 21st century, after 50 years of nothing being done.
However, it is an extraordinarily complex business. Re-tooling the abstraction regime to make it fit for our current living conditions is an enormous challenge. The reform will not happen tomorrow or in two, three or four years, however expeditious the Government are. It will happen in stages, and it will have to be carefully considered. If we can properly regulate the upstream reforms and find new sources of water, we must do so.
I asked questions at some length in Committee on Tuesday about safeguards. I believe that they are in place and will be effective. Sections 3.6 to 3.9 of “Defra’s strategic policy statement to Ofwat incorporating social and environmental guidance” make it absolutely clear that Ofwat must have regard to the sustainability of the water system. With all those pieces of legislation in place, I am reasonably confident.

Thomas Docherty: The hon. Gentleman is making a compelling argument. I might have to revise my interpretation of his speech on Second Reading. Does he accept that the Environment, Food and Rural Affairs Committee has said that the earliest that reform would happen is 2022, and that we hear from the Government that it could happen in the middle of the next decade?

George Hollingbery: I do not disagree for a second that reform is something we must do with the greatest expeditiousness. We must get on with it because there is a real crisis in this country. We dodged a bullet in 2012—we almost ended up with standpipes on the streets of southern and eastern Britain, which would have been unacceptable.
To deal with the crisis, we must find new water supplies, whether from winter reservoirs, or by recharging aquifers or building new reservoirs. Upstream reforms are a part of making new supplies viable. We must encourage businesses and put them in a position in which they can afford to do projects of that sort. If we simply wait, we will miss the opportunity. We can change abstraction at the same time. I hope the Government introduce abstraction reform as quickly as possible. I am not in the Government, and I do not know what their intentions are for the mid part of the next decade or the decade after that. However, I am confident that they sincerely wish to reform abstraction. As I have said, nothing has happened for the past 20, 30 or 40 years.

Dan Rogerson: It is a pleasure to follow my hon. Friend, who has a strong record on this issue. He characterised himself as banging on about it, but he has been far more impressive than that implies and has made cogent, well informed contributions to the debate. I, too, pay tribute to my predecessor as Minister, the hon. Member for Newbury, who has done a huge amount to take this forward. It is right and proper that I put on the record my gratitude for all the work he has done and the position in which he has left me. The Secretary of State has also been very interested in the issue.
I thank the hon. Member for Dunfermline and West Fife for his amendment, and I am grateful for his comments on explanatory notes. As he knows, the procedures of the House that will come into force in January mean that that will become accepted practice for all debates. I have provided the Committee with explanatory statements on all Government amendments up to clause 15, and we will circulate statements on all other tabled amendments this week. He will therefore have all of them, although some of the amendments were tabled rather late. I hope he is satisfied by the fact that we sent letters explaining the purpose of all the amendments when we tabled them. Members can find in the room a commentary on the flood reinsurance new clauses, which were tabled rather late. I thank him for the spirit in which he has approached those issues.
The amendment would prevent clause 1 from coming into force until five years after Royal Assent to future primary legislation on abstraction reform. It would significantly delay not only upstream reforms, which was the hon. Gentleman’s key point in his contribution, but our retail reforms. As he has said, he is a huge supporter of pressing on with retail reform, but the amendment would delay our implementation of both retail and upstream reforms until 2022, or later if the abstraction reform process moves on that timetable.
The Government and the Open Water programme, a partnership between the industry and regulators, are working towards the retail market opening in 2017. We therefore cannot justify the delay caused by the amendment. Our retail reforms are widely supported by customers, who will benefit from improved customer services as a result of the changes, and by the hon. Gentleman, as so passionately expressed in the previous debate. Non-household customers are, of course, free to negotiate the best package that suits their needs. Customers with multiple sites will benefit hugely from being able to negotiate for a single bill from a single supplier. Improved customer services will have knock-on effects for household customers too.
Upstream reforms will be introduced at a much slower pace, beyond the 2019 price review, because we recognise that they will require careful planning and close working between the water industry, regulators and customer representatives. However, it is important to press ahead with upstream reform because the current regulatory model is not delivering the kind of efficient resource use and innovation we need.
Our reform will help to drive growth, create employment and keep bills affordable, and it will benefit the environment. We estimate that the upstream reforms will bring benefits of up to £1.8 billion over 30 years. There are sufficient safeguards in the existing regimes to prevent an unsustainable increase in abstraction by non-water companies in response to the implementation of upstream reform. In looking at current unsustainable abstraction, we have a twin-track approach. In parallel to developing reform proposals, we are ramping up our efforts to reduce damaging abstraction now, by making better use of our existing tools.
We continue to work with licence holders to reduce abstraction through the Environment Agency’s restoring sustainable abstraction programme. It takes time to do that. We may know that a particular abstraction is damaging the environment, but if, for example, the water supplies a major conurbation, we cannot just switch it off overnight. Ways of reducing that damage have to be considered and alternative sources of water investigated.

Neil Parish: One either has to extract water to have the water resource, or one can recycle water to make it go further. I feel that there is not enough in the Bill about water recycling.

Dan Rogerson: I reassure my hon. Friend that the Government very much support looking at how water can be recycled. However, it is not something that needs to be legislated for now. A number of schemes, such as new housing developments, are coming forward where that is happening. For example, I recently visited a development in Gloucestershire where water is recycled and comes back into the system to reduce the amount of drinking water that those properties take in. My hon. Friend makes a good point about the various options we can explore to bear down on the need to abstract water from the environment.
The Environment Agency will soon use its powers to revoke or vary abstraction licences without compensation where they cause serious damage to the environment. That follows our recent consultation on how to assess serious damage. The Environment Agency is also considering a modified charging scheme that will allow the environmental improvement unit charge to be used to fund changes to river channels and protect water ecosystems, following a consultation. DEFRA is also working with the Environment Agency and Ofwat to develop better tools and incentives to help water companies manage their abstraction sustainably.

Mary Glindon: It is a pleasure to serve under you, Mr Gray. The Minister talks about the Environment Agency, but in an article this week, which is probably true, an expert on water said that the Environment Agency is suffering massive cuts to staffing. If more emphasis is being placed on what the agency has to do, is the Minister confident that it can manage with its level of staffing?

Dan Rogerson: I am grateful to the hon. Lady, because it gives a further opportunity to reflect on the evidence from our earlier session. My hon. Friend the Member for Meon Valley asked witnesses from the Environment Agency if they had the resources available to tackle these issues. They were confident that they would have those resources. We can be reassured that that is the case. The hon. Lady is right to point out that we are asking the agency to do what it does very efficiently. It will reduce its numbers. We have to keep the matter under close scrutiny—I know hon. Members on both sides of the Committee will do so. We can be reassured that the agency was very clear that it has the resources and is looking forward to taking up the opportunities to get to grips with the problem even more.
The Bill includes one significant change that will enable a more effective approach to tackling over-extraction by water companies. We will remove the water companies’ statutory right to compensation for losses resulting from modifications to, and revocations of, their abstraction licences. That fulfils a Government commitment in the water White Paper to consider a framework that integrates water company schemes to restore sustainable abstraction into their mainstream business planning, and to provide funding through the Ofwat price review process. We are doing something in the Bill, although, as we have heard, the process of abstraction reform happens on a parallel track to what we are discussing. The Government are fully committed to abstraction reform. That will not be upset or put off by that measure.

Matthew Offord: It is a pleasure to serve under your chairmanship, Mr Gray. Given the interest of so many hon. Members, will the Minister make it clear that abstraction reform will not be dealt with by secondary legislation, because of the amount of scrutiny that is needed on such an important issue?

Dan Rogerson: My hon. Friend is absolutely right. We have to ensure that there is proper scrutiny because the measure is crucial both to the environmental considerations we have been talking about and to the desire to ensure resilience. My hon. Friend the Member for Meon Valley has made that point, too. We never want to have to resort to rationing water for domestic use for essential uses. It is important that we get it right for that purpose. Moreover, to deliver growth in the economy, we must ensure we have sufficient resource for new employers and organisations who want to make efficient use of water.
I made it clear on Second Reading that we will publish consultation on abstraction reform this month. That is still our intention. Hon. Members can be reassured that both processes—reforms to improve efficiencies and opportunities in the industry, and abstraction reform—will continue and will be broadly in parallel with each other.

Thomas Docherty: We welcomed that expectation of consultation. May I press the Minister to say a little on the time scale for that consultation going into 2014?

Dan Rogerson: The hon. Gentleman knows how Government works. I have to ensure that I reflect the correct position of how the consultation is expected to proceed, and those details will be published in due course. We are committed to getting it out. The hon. Gentleman and all hon. Members will have the opportunity to consider those proposals and contribute to that consultation, along with some of the organisations that we heard from during our evidence sessions.
I am convinced that there are sufficient safeguards in the existing regime to prevent an unsustainable increase in abstraction by incumbent water companies and inset appointees for the purpose of water trading or bulk supply agreements. The Environment Agency and Natural Resources Wales have wide powers to address any issues around the draining of one area of water to supply another under the Environment Act 1995. Water companies themselves have statutory environmental duties, including a duty to have regard to river basin management, when deciding whether to enter into bulk supply arrangements.
I also assure the Committee that the Government are committed to abstraction reform. We aim to legislate for that reform early in the next Parliament with a view to implementation in the early 2020s. Finally, we are committed to ensure that the implementation of our upstream and abstraction reforms is carefully co-ordinated, with the timetables for the expansion of upstream water resource markets and the transition to a new abstraction regime likely to be broadly similar. This will enable abstractors to take decisions about managing their water use with good information about how future regulation will operate and the role that markets might play in enabling them to meet their water needs. I hope that the hon. Member for Dunfermline and West Fife will be reassured and will therefore withdraw the amendment.

Thomas Docherty: I do not intend to keep the Committee very long, but I want to refer hon. Members back to the observations made by the EFRA Committee. I welcome what has been a genuinely good exchange this afternoon. Our central problem, which is shared by the wider community, is that there has not been any sense of urgency from the Department, although that is not a criticism of the Minister as he is relatively new in his post. The Select Committee, non-governmental organisations and those with a passion about abstraction believe that we are just not seeing enough progress. The Select Committee said:
“In our report on the Water White Paper, we were critical of its lengthy timescales for abstraction reform and we recommended that the end date for the reforms should be brought forward to 2022.”
It is clear that the Department sees abstraction reform as happening well beyond 2022, but if the Minister wants to clarify that, I will be more than happy to take an intervention.

Dan Rogerson: We have made it clear that we want to make progress. We are talking about progress in the early 2020s, but I hope that that hon. Gentleman will concede that we have to get this process right. I quite understand the pressure for urgency, but there are many other considerations that have to take into account. We have to make sure that everybody has the opportunity to be consulted, and that we get a process that is robust for coming decades and will not need to be revisited directly afterwards.

Thomas Docherty: That was not quite the reassurance I was anticipating from the Minister, given his body language some moments ago, but he is right when he says that we need to get this right. Labour Members we do not believe that taking a decade-plus to do something necessarily suggests that the Government are going to get it right. The Bill is a good example of how length does not always lead to accuracy, given the number of Government amendments that the Minister has felt the need to table. It is not enough just to punt abstraction reform not just off to the next Parliament, but the one after that. I expect that I will press new clause 27 to a Division later in our proceedings, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Dan Rogerson: I beg to move amendment 52, in clause1,page2,line18,at end insert—
‘(c) the Environment Agency;’.

James Gray: With this it will be convenient to discuss Government amendments 53 to 55, 110 to 112, 99 to 101 and 126.

Dan Rogerson: The amendments introduce a requirement for Ofwat to consult the Environment Agency and/or Natural Resources Wales before it grants a water supply licence or issues a code on an agreement under the water supply licence. They also add a requirement for the Secretary of State to consult Natural Resources Wales, and for Welsh Ministers to consult the Environment Agency, before they each publish a strategic policy statement under clause 24. The Secretary of State will also consult Natural Resources Wales before giving a direction on the basis on which a water resource management plan is to be prepared under clause 27.
We know that we are facing growing pressures on our water resources as a result of changing climate and population growth. That is why we want to encourage more upstream competition in the water industry under the Bill and, as my hon. Friends have pointed out, we also hope to see benefits for the environment and indeed customers, and more resilience as a result. It is therefore important to designate the Environment Agency and Natural Resources Wales as statutory consultees as they are the regulators responsible for protecting and improving the environment and promoting sustainable development.
Amendment 126 adds a requirement for the Secretary of State to consult Welsh Ministers when determining standard licence conditions under schedule 7. That relates only to the authorisations that will apply to water supply licences operating in the area of Welsh incumbent water companies, as my hon. Friend the Member for Brecon and Radnorshire will be interested to hear. That is because the Welsh Government have decided not to implement our retail competition or upstream competition reforms for Welsh incumbent water companies. However, it is important for Welsh Ministers to feed into the process for determining the standard licence conditions for those water supply licences that will continue to operate in Wales.

Thomas Docherty: I do not intend to say much, but we welcome the amendments as a sensible step forward. We will have a broader debate about other consultees later.

Amendment 52 agreed to.

Amendments made: 53, in clause1,page2,line18,at end insert—
‘(d) the NRBW.’.
Amendment 54, in clause1,page2,line22,at end insert—
‘(ba) the Environment Agency;’.
Amendment 55, in clause1,page2,line24,at end insert—
‘(e) the NRBW.’.—(Dan Rogerson.)

Question proposed, That the clause, as amended, stand part of the Bill.

James Gray: With this it will be convenient to discuss new clause 28—Standardised terms and conditions for new entrants —
‘Any company granted a water supply licence under section 17A of the Water Industry Act 1991, following Royal Assent of this Act, must be—
(a) offered comparable terms and conditions as any company granted a water supply licence prior to Royal Assent of this Act; and
(b) all terms and conditions must be subject to scrutiny by the regulator.’.

Ofwat would require each wholesaler to produce standardised terms and conditions for new entrants.

Thomas Docherty: New clause 28 deals with the other part of the market debate. As it stands, any new entrant would have to negotiate terms and conditions individually with each of the wholesalers. As we heard in compelling evidence on Tuesday from Peter Kenway, the regulators and Business Stream, that is the single biggest impediment to new entrants getting a grip. Some of the water companies have a 25-year head start on new entrants and will not offer as favourable terms to new entrants as they do to their own in-house water companies. There is also additional bureaucracy. The idea of a regulated market is not to make it more difficult for people to get in, but to ensure that neither the consumer nor the vendor is unfairly treated. The new clause is simple—I genuinely think the Minister is in a good place over the next 10 days to reflect on whether we can reach an accommodation—as it proposes that when a new entrant comes into the market, they must be offered the same terms and conditions as any other vendor or, indeed, the incumbent water companies.

Neil Parish: In the Bible, David beat Goliath, but I am not sure that that would happen with water companies. As it stands, there are large water companies with powerful vested interests. If we are to get true competition, we must let smaller retailers into the market. I will be interested to hear what our very able Minister has to say about the matter.

Thomas Docherty: On the subject of David and Goliath, I will have to bow to the hon. Gentleman’s longer service, because I was not around at the time.
I shall go into a little detail for the benefit of the Committee. The new clause would ensure that there was transparency in the market. There would be comfort for new entrants, Parliament and the regulators that no company would be given unfavourable or favourable treatment by the wholesale provider. Each water company should be treated in exactly the same way when trying to reach an agreement.
I accept that the new clause is largely technical, but it would form a critical part of making the market work. We believe it would be dangerous for the market simply to be allowed to operate for a while so that we can see how it works, and then come back to offer a change. It is important that on day one in 2017—I am sure that the Minister will confirm that the Government’s goal is still to open up the market in that year—every new entrant is working on the same assumptions.
We should want commonality in the costs involved in the charging regime in the marketplaces, such as for getting water out of the ground and to the right place. As the Minister knows, the industry is worried that not all wholesalers will behave in an entirely honourable way, so a level playing field would help to avoid that happening.
I genuinely hope that I will receive a more favourable response from the Minister that I did in our earlier debate on market reform. I will be grateful to hear the Government’s position on the new clause.

Dan Rogerson: We have had a wide-ranging debate on many aspects of clause 1, so I shall address my remarks to new clause 28, which would require that any terms and conditions offered to a company issued with a licence following Royal Assent must be comparable with those offered to license water supply before Royal Assent, and that the regulator must be able to scrutinise those terms and conditions.
As I understand the new clause, it would mean that incumbent water companies would have to offer the same terms and conditions that they negotiated with existing licensed water suppliers to those issued with licences after Royal Assent, up to and after we commence provisions that will allow charges to be set by Ofwat’s rules, and other terms and conditions to be set through codes. The cost principle would remain in place, as would existing terms and conditions already negotiated. Licensees would remain at a competitive disadvantage in negotiating terms.
At present, all access charges must be set on the basis of the cost principle. Any agreements to provide services to customers are negotiated individually between every incumbent and all licensees that wish to enter the market. Ofwat-produced guidance includes draft terms and conditions, which the parties to existing agreements may adopt if they wish. If we were to agree to the new clause, it would be either the template agreements, or purely negotiated agreements, that would determine the future terms and conditions for the market. In a case when an incumbent water company has different agreements with each licensee currently in the market, the new clause does not specify which agreement should apply. For those reasons, I have some concerns about the details of the new clause. If the hon. Gentleman were to press it to a Division, I would urge my hon. Friends to resist it.

Thomas Docherty: I am genuinely disappointed. The Minister’s argument is probably the weakest that the civil servants have come up with so far. It flies in the face of common sense and of making the market work, which is probably why the civil servants are against the new clause.
The Minister rightly set out the existing arrangements, but he is again advocating the status quo. As the Committee knows, there is already a market for—I apologise to the Committee if I get this wrong—more than 5 megalitres. The reality, as we heard in evidence on Tuesday, is that only three companies have switched in the decade-plus that that has been operating. One of the reasons is because it is time consuming for new applicants to have to try to negotiate with each and every water company.
If the Minister is saying that he has a genuine concern about the specific wording of the new clause, we have some time prior to the end of the Committee’s deliberations in which I am more than happy to work with him on the technical wording. However, if his argument is that the status quo has worked up to now and we should not change things, it is, frankly, bizarre.

Dan Rogerson: I appreciate that the hon. Gentleman is trying to be helpful. We agree that entrants must be able to compete on equal terms, but I do not share his view that access will always have to be negotiated. The Bill clearly allows for regulated access based on market codes, and that is the approach that we have taken.

Thomas Docherty: I seek your guidance, Mr Gray. I suspect that I am not allowed to talk about the market code amendments too much at this point.

James Gray: Absolutely not.

Thomas Docherty: The market codes simply do not go far enough, however. When we heard evidence from Business Stream on Tuesday—I know that all members of the Committee were paying close attention—it flagged up the market codes as its single biggest concern about the Bill.
The hon. Gentleman has met Business Stream several times—before and after he became a Minister. I am genuinely surprised, given what the regulators and new entrants are saying, that his civil servants continue to resist a logical and simple change. If he has a specific concern about unfairly penalising the existing poor water companies, or if he can point to some failure in the wording of the new clause, we will be happy to work with him over the next 10 days to see whether we can tighten things up.
If the Minister is trying to protect those water companies—it sounds like he is—I urge him to think again over the next 10 days. If we end up with a situation in which existing water companies have an unfair built-in advantage, 25 years’ knowledge and preferential rates, it will lead to market failure. How on earth does he think that that will lead to new entrants having the best chance of succeeding? I intend to press new clause 28 to a Division at the appropriate time, unless the Minister is prepared to work with us to improve its wording.

Question put and agreed to.

Clause 1, as amended, accordingly ordered to stand part of the Bill.

Schedule 1 agreed to.

Schedule 2  - Water undertakers’ duties as regards water supply licencees

Dan Rogerson: I beg to move amendment 108, in schedule 2,page105,line9, leave out ‘review’ and insert ‘revise’.

James Gray: With this it will be convenient to discuss Government amendments 109, 114 to 118, 120 to 123, 60, 64 to 66, 71, 73, 76 to 81, 14, 84 to 86, 18, 19, 21, 87, 90 to 92, 25, 93 to 95, 97 and 98.

Dan Rogerson: I am grateful for the opportunity to speak to amendment 108 and the other amendments grouped with it. Charging rules and charging guidance are a vital element of the Bill. Our reforms establish a number of new charging regimes and clarify the regulatory frameworks within which the existing regimes operate.
The Bill sets out a clear hierarchy for the setting of charges by water companies. We amended the Bill following pre-legislative scrutiny to make it a duty for Ministers to produce charging guidance for Ofwat. That guidance will embrace all relevant charging matters and establish a clear framework that governs both the company schemes for charging users and the new competition regimes. In addition, the Bill provides in a number of instances for the publication of more technical guidance on the detail of individual charging matters.
The amendments encompass a large number of minor technical changes to the Government’s charging guidance and Ofwat’s charging rules. They are all designed to improve the drafting, consistency or clarity of the Bill. For example, they ensure that a consistent approach is applied throughout the Bill in the use of the terms “rules” and “codes”. They substitute the word “revise” for the word “review” in a number of places. In addition, in combination with amendments tabled to clause 36, they ensure consistency regarding the requirement on Ministers to produce general charging guidance that covers all the charging matters addressed throughout the Bill and any charges rules produced by Ofwat.
Ministers must produce the guidance to ensure that the regime is proportionate. There is a power but not, in most cases, a duty for Ministers to issue further guidance or guidance on more technical details. The final charging guidance must reflect the debate in Parliament during the passage of the Bill. It will be issued in draft for formal consultation with all interested parties. Furthermore, the Bill provides Parliament with the opportunity to debate and vote upon the charging guidance following the consultation process.
The Committee will have further opportunity to discuss the charging guidance in detail when we debate clause 36. The amendments simply ensure clarity and consistency on matters throughout the Bill.

Thomas Docherty: May I seek some guidance, Mr Gray, on how you would like me to proceed? Would you prefer me to discuss the specific issue of market operational codes now, or, as the Minister alluded to, tie it in with the issue of de-averaging? I am happy to do it either way and do not wish to detain the Committee unduly.

James Gray: Later.

Amendment 108 agreed to.

Amendments made: 109, in schedule 2,page105,line16, leave out
‘code proposed to be issued’
and insert
‘proposed code under section 66DA’.
Amendment 110,in schedule 2,page105,line22, at end insert—
‘(ba) the appropriate agency;’.
Amendment 111,in schedule 2,page105,line35, at end insert—
‘(ba) the appropriate agency;’.
Amendment 112,in schedule 2,page106,line31, at end insert—
‘(10A) In this section “the appropriate agency” means—
(a) the Environment Agency, in relation to section 66D agreements made with water undertakers whose areas are wholly in England;
(b) the NRBW, in relation to section 66D agreements made with water undertakers whose areas are wholly in Wales;
(c) both the Environment Agency and the NRBW, in relation to section 66D agreements made with water undertakers whose areas are partly in England and partly in Wales.’.—(Dan Rogerson.)

Dan Rogerson: I beg to move amendment 113,in schedule 2,page107,line20, at end insert—
‘( ) publication of the charges that may be imposed.’.

James Gray: With this it will be convenient to discuss Government amendments 119, 62, 63, 74, 75, 82, 83, 88, 89 and 96.

Dan Rogerson: The amendments enable Ofwat to require publication of certain charges made by incumbent water companies and inset appointees. That means that Ofwat will be able to use its rules to ensure that incumbent water companies and inset appointees publish their charges to licensees, developers and other incumbent water companies or inset appointees in the same way that it can require the publication of charges schemes under clause 16. That is important to improve transparency on charging and to increase consistency throughout the Bill.
Under the new competition framework introduced by the Bill, Ofwat’s rules cover: the access prices that incumbent water companies and inset appointees use to charge water suppliers sewerage licenses for using part of the network; charges for connecting premises to the system and for the adoption of pipes laid by developers; water trading or bulk supply agreements; sewage sludge trading or main connection agreements between incumbent water companies and inset appointees; and, finally, the charging schemes that incumbent water companies and inset appointees use to charge customers for water supply and sewerage services.
As the Bill is currently drafted, Ofwat’s rules on charging schemes under clause 16 may include a requirement for the publication of charges schemes, but the same does not apply to other market participants, such as licensees and developers. The amendment allows Ofwat to introduce the requirement for incumbent water companies and inset appointees to publish their charges to other market participants. That will stimulate competition by informing market participants about current charging arrangements.

Amendment 113 agreed to.

Thomas Docherty: I beg to move amendment 142,in schedule 2, page107,line28, at end insert—
‘(3A) The rules must include provision for and in connection with ensuring that there are no variations between charges, or the amount of charges, imposed by a water undertaker under different section 66D agreements in consequence of the location at which the duty or duties to be performed by that undertaker under such agreements fall to be performed.’.

This amendment rules out de-averaging of charges with a single, company-wide wholesale access price except where variations are agreed by wholesalers and retailers.
With your permission, Mr Gray, I will cover the de-averaging of charges and the charging codes at the same time. Charging codes are so phenomenally technical that even water nerds such as the Minister and I do not stay up at night thinking about them. As the Minister outlined, the codes are basically the rules under which retailers and water and sewerage companies engage with each other. Their purpose is to ensure that there are fair, equitable, clear and consistent rules, and standard levels of services to which all retailers operate. They are therefore critically important.
The Minister and I agree that there is a difference between the Scottish and English models. There is just one wholesale provider in Scotland—Scottish Water—and about a dozen upstream wholesale water companies in England. If the Minister gets inspiration he can correct me if I have got that number wrong. Members on both sides of the House therefore recognise that it will be more challenging to get the market to work south of the border. The Select Committee on Environment, Food and Rural Affairs and others have said that it is useful that we can lean on the Scottish model, but more work is required. I therefore welcome the technical changes that the Minister proposed.
The Bill proposes a large number of market codes. The Minister knows that I do not share the Government’s vision and that I think it can be done in a simpler way. There is a danger, which amendment 142 seeks to address. If I were being charitable to the Department, I would say that it had focused so much on the codes that not enough attention was given to the charging regimes that will operate in each area.
I will give a couple of examples to illustrate the purpose of amendment 142. The Minister will be aware of the case of Shotton paper mill in Wales, as will the hon. Members for Arfon and for Brecon and Radnorshire.

Roger Williams: What about the hon. Member for Islwyn?

Thomas Docherty: My hon. Friend needs no introduction. There are a number of Welsh colleagues in the room who can testify to the long-running saga of the paper company and Albion Water.

Chris Evans: The Minister is half-Welsh.

Thomas Docherty: The Minister is half-lucky then. He is a full-blooded Celt—is that the right way of putting it? [ Interruption. ] I appreciate that not all Members are so lucky as to be Scottish, but Welsh is also good.
On the serious example from Wales, there has been a prolonged, protracted legal battle between the water company and the paper mill owner, which has resulted at every stage in defeat for the water company. It has led to a regrettable situation for the wider community, where the paper company has been able to argue that it is cheaper for it to be serviced by another water provider. It has, in effect, introduced de-averaging into the market. I suspect—the Minister may wish to clarify this—that that bad experience of de-averaging is one of the main reasons why the Welsh Government have been so reluctant to pursue retail competition.
Amendment 142 seeks to make the market more robust. It is a technical solution that is backed by the Select Committee and others. It would ensure there is no cherry-picking by either wholesalers or new entrants into the market through de-averaging.
Committee Members will recall that I was very much on the side of new entrants earlier and firmly against incumbents. On this occasion, it is the reverse. The Bill as it currently stands has the potential to give new entrants an unfair advantage over the incumbent water companies. The bit that should be of particular interest to south-west Members—I see heads snapping up—is that the area most likely to suffer from de-averaging within England is the south-west region.

Sheryll Murray: I should make it clear that it was my head that the hon. Gentleman referred to.

Thomas Docherty: I think more than one head snapped up. Perhaps the hon. Lady did not notice that her colleagues also seemed to find that bit interesting.
The fundamental point is that where there is a diverse geographical area and the water supply is some distance away from the end user, there is a real danger, as the Bill currently stands—I hope the Minister will accept that we tabled the amendment to improve the Bill and make it more robust—that there could be cherry-picking of customers by new entrants. They would be able to say, “You are quite close to your water supply, so we can bring down the costs.” Customers who are not switching would be left with a higher charge, because they are in effect no longer subsidised.
Averaging and de-averaging is a subsidy within a region. No matter how far away someone lives from the water supply, they are given the same charging regime. Whether they were 50 ft or 50 miles from the source, the charge would be the same. That is something that all parties have always thought of as a principle. We therefore urge the Government to accept the amendment, which is offered in a spirit of genuinely trying to help them. It is backed by the regulators, particularly WICS. The Minister will recall from his time on the Select Committee that it was a specific issue. It is also the one issue that may actually cause the Anglo-Scottish market to collapse. The Minister will also recall—I am sure his civil servants have reminded him—that there was a great deal of correspondence from the Scottish Ministers to their counterparts in DEFRA about their concerns.
I look forward to the Minister’s response. I say to colleagues from the south-west, “Be careful what you wish for”, because this measure might cause a real price increase in the south-west region in particular.

Neil Parish: I want to react to the remarks made by the shadow Minister. In many ways, he might be right. On the other hand, when he started this debate, he gave us a great spiel on what a great free marketeer he was. I feel that he has moved off the plot slightly, because this is competition.

Thomas Docherty: I am sure the hon. Gentleman did not mean to suggest that I had lost the plot. I can clarify that we believe in a regulated market, not an unregulated one.

Neil Parish: I am grateful for that clarification.

Dan Rogerson: Following on from the earlier debate about the Celtic roots of various members of the Committee, the hon. Member for Islwyn, who is no longer in his place, pointed out my heritage, and, of course, my hon. Friend the Member for Weston-super-Mare, who is sitting next to me, has a great Cornish surname. This thing could continue at length.

James Gray: Order. I would rather it did not.

Dan Rogerson: You have quickly called me to order, Mr Gray, as you told us you would when we step out of line.
The hon. Member for Dunfermline and West Fife is keen to be helpful to me and I am very grateful for his help. He has been proffering it throughout these exchanges and in that spirit I will set out the Government’s position. His amendment requires Ofwat’s rules to regulate charges between water supply licensees and incumbent water companies in order to prevent the agreements that would allow reduced charges to be imposed because of the location of the services to be provided. This, as the hon. Gentleman says, is to prevent the breakdown of geographical cross-subsidies and the de-averaging of charges, which could lead to some customers being charged more for the same services as other customers, purely because they are not located close to sources of water or treatment works. The hon. Gentleman demonstrated his keen knowledge of the south-west of England and, indeed, Cornwall.

Sheryll Murray: Perhaps my hon. Friend will tell us what protection the Government have in place for rural communities like mine and his constituents in Cornwall?

Dan Rogerson: A number of issues could have an effect, not just in rural areas, but in urban areas. If we are talking about distance and therefore the cost of supplying, it is not so much an urban-rural divide as distance from source or treatment. Amendment 142 therefore requires Ofwat to produce charging rules, despite what ministerial guidance might have to say about de-averaging. As the Committee will be aware, the Government have published charging principles to help the debate on what ministerial charging rules might cover when they are produced for the retail market opening in April 2017, and the upstream market which is intended to happen after the next price reviews.
On de-averaging we said:
“Averaging of charges is common practice in sectors that have much greater scope for contestability than the water sector does. Ofwat has a number of tools to limit the effect of de-averaging on customer charges. They will use these to ensure that any marginal changes are introduced in a measured fashion and, above all, that they are in the overall interests of consumers”.
The introduction of competition does not require de-averaging. Many competitive markets include average charges: a supermarket will sell milk at the same price all over the country, for instance. These are regulated markets in which changes will be set according to Ofwat’s rules, which will follow our guidance. Our charging principles already address this. With this amendment, Ofwat would have to disregard the views of Ministers and stick to an inflexible provision which, being included in primary legislation, would be difficult to change if its appropriateness is challenged by Ofwat.
The ministerial veto would be rendered useless where rules specifically cover location-based charges. It effectively puts incumbent water companies at a competitive advantage—as the hon. Gentleman said, it is a danger in this area—because its own customers are not subject to these rules. Incumbents could make agreements under section 142(2)(b) of the Water Industry Act 1991 to retain customers by charging them on a more cost-reflective basis rather than lose them to a licensee. This will make licensees unable to compete. We are increasing transparency around the creation of special agreements under clause 31 by requiring these agreements made by incumbent water companies to be reported to Ofwat when they are made.
We are also allowing Ofwat’s rules on 66D agreements to allow customers to retain the benefit when they switch, if they have a special agreement under the new 66E(3) in schedule 2. However, customers who currently enjoy discount because of their location would be prevented from switching if we were to accept this amendment.
Concerns have been raised about competition law and its interaction with Ofwat’s charging rules. It is important to explore that a little more. The Water Bill will set the rules for entry in the market and the basis on which licensees may compete with incumbents. We will amend the Water Industry Act 1991 to provide for setting rules for determining the terms and conditions in agreements, which will continue to be governed by sector-specific legislation. The Secretary of State may veto Ofwat’s rules and make Ofwat think again, particularly if draft rules are not consistent with ministerial guidance. Incumbents or licensees may challenge Ofwat’s decisions on the setting of rules through a judicial review, but this would not be a merits appeal of Ofwat’s decision.
The Competition and Markets Authority and Competition Appeals Tribunal do not have the jurisdiction to challenge Ofwat’s rules. The CMA would be able to investigate how well the water market is working in England and Wales, but it may only make recommendations to Ministers to amend legislation, or for Ofwat to change its rules. However, any changes proposed by Ofwat would still be subject to ministerial veto.
Those who have called for a ban on de-averaging tend to describe a world in which there is no regulation of competitive markets. We are sure that the regulation will be in place to ensure that people are confident that the system is fair, robust and achieves the aims that I hope we share.

Thomas Docherty: Again, I am slightly surprised by the brief given to the Minister, because it chooses to ignore the central fact that we have already seen an example of de-averaging in Wales. Shotton Paper has now won its court cases, against the express wishes of the Welsh Government. That case of one company has added £2 million in costs to the other customers’ bills in the water area. If that were repeated five or 10 times in, for example, the Minister’s region, which is the one most likely to suffer, south-west Members would soon be writing to him to ask how it had been allowed to happen.
The complacency from DEFRA on the matter has been staggering. It has been raised repeatedly by the Environment, Food and Rural Affairs Committee, WICS and others. The Minister has not provided reassurance that anything in the Bill would prevent the Shotton Paper example in Wales from happening in England. For that reason, we will press the amendment to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Question accordingly negatived.

Amendments made: 114,page108,line1, in schedule 2, leave out ‘review’ and insert ‘revise’.
Amendment 115,page108,line2, in schedule 2, at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 66EC, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.—(Dan Rogerson.)

Dan Rogerson: I beg to move amendment 45, page109,line11, in schedule 2, leave out from ‘rules’ to end of line 12.

James Gray: With this it will be convenient to discuss Government amendments 47, 49, 9, 11, 15, 16, 22, 23, 28 to 32 and 34.

Dan Rogerson: The amendments make changes to the various provisions dealing with Ofwat’s powers to produce rules on charges, including the requirements to consult relevant persons, and the power of Ministers to intervene in Ofwat’s charges rules.
In producing its rules relating to the various charging regimes addressed in the Bill, Ofwat is required to consult relevant persons. Amendments 15 and 22 require Ofwat to specify a consultation period for the proposed rules relating to agreements to adopt water and sewerage infrastructure under clauses 10 and 11. That will ensure that the consultees are aware of the length of time available to make those representations. That mirrors provision made elsewhere in the Bill for other charging regimes.
Amendments 16 and 23 allow for a ministerial veto in relation to Ofwat’s charging rules that relate to agreements for the adoption of water and sewerage infrastructure. That mirrors provisions elsewhere in the Bill for other charging regimes. The amendments specify a period of time within which the directions must be issued, and establish that the rules may not be published before that deadline. The Bill allows Ministers to direct Ofwat not to issue any set of rules within a specified period after its statutory consultation period. It provides a suite of linked duties and powers for Ministers to issue charging guidance—the hon. Member for Dunfermline and West Fife has said that he wishes to explore that as we move through our consideration of the Bill—to Ofwat on matters relevant to all charging regimes covered by the Bill. Ofwat will be required to publish all charging rules in draft and to consult all relevant persons about the draft. The amendments ensure consistency in requiring Ofwat to specify a consultation period for the proposed rules.
Ministers will have a power of veto over all charging rules issued by Ofwat. That will allow them, within 28 days of the conclusion of the statutory consultation period, to direct Ofwat not to issue any sets of rules. Such an intervention could require Ofwat to revise the rules, which must be made in accordance with ministerial guidance. The amendments make clauses 10 and 11 consistent with that approach.

Thomas Docherty: I do not wish to delay the Committee. It would perhaps be helpful if the Minister could set out in 30 seconds who those consultees are likely to be.

Dan Rogerson: I would be happy to do so. I suspect—

Thomas Docherty: The Minister can reflect on it and come back to me shortly.

Dan Rogerson: I may well have the opportunity to do so when inspiration strikes. I should like to go a little further in explaining the rest of the amendment, and then clarify that point for the hon. Gentleman, which is a perfectly reasonable one.
The amendment removes a further power that would have enabled Ministers to direct Ofwat to make specific changes to the rules. We felt that that went further than our intention and could have blurred the important distinction, which we have explored in Committee, between Government policy making and regulatory independence. I am satisfied that there are robust safeguards in place to ensure that the regulator’s charging—

James Gray: Order. Members of the public are not entitled to move beyond the Bar.

Dan Rogerson: I am satisfied that there are robust safeguards in place to ensure that the regulator’s charging rules appropriately reflect the Government’s policy for customers and the industry. The amendments also make a small change to the regulation-making power in clause 12 to bring it in line with the approach taken to codes in the rest of the Bill, so that we have a consistent approach in the Bill. It is important that, in introducing the amendments, we draw back from too much ministerial interference in the regulatory approach we are taking in the Bill. Clearly, our intention is to issue guidance and maintain a safeguard for Ministers, but we do not seek to unduly influence the regulator in that regard.
To answer the hon. Gentleman’s question, the Bill provides for consultation of relevant persons, as I set out in my first few remarks. It would include, for example, the Consumer Council for Water, from which we have heard evidence, the Secretary of State, Welsh Ministers, incumbents and relevant parties. Those are the sort of groups who could expect to be consulted. I am happy to put that on the record.

Thomas Docherty: I am most grateful. It would be helpful if the Minister could write to me afterwards with a full list. I do not wish to delay the Committee but I should like to explore that at some point.

Dan Rogerson: I would be happy to do so, but any such list may well include more people than we envisage at the moment. We would seek to consult as widely as is appropriate. I am happy to write to the hon. Gentleman in those terms but the term “relevant parties” would allow us to ensure that we cover all those who need to be consulted.

James Gray: Before I put the question, it has been brought to my attention that one or two comments that have been made by members of the Committee are not being adequately heard by those who are listening. Therefore, those who take part in the debate might like to speak more loudly and clearly, like me.

Amendment 45 agreed to.

Dan Rogerson: I beg to move amendment 46, in schedule 2, page 109, line 28 at end insert—
‘( ) This section is subject to section 66EBA.
66EBARules under section 66E: minor or urgent revisions
(1) This section applies if the Authority proposes to issue revised rules under section 66E and, in the view of the Authority, the revision or each of the revisions proposed to be made is—
(a) a revision for which consultation is unnecessary, or
(b) a revision that it is necessary or desirable to make without delay.
(2) Section 66EB does not apply to the proposed revised rules.
(3) Before issuing the revised rules, the Authority must give notice to the Minister of its intention to issue revised rules.
(4) Before the revised rules are issued, the Minister may direct the Authority not to issue the revised rules.
(5) A direction under subsection (4) must be given within the period of 14 days beginning with the day after the day on which notice is given under subsection (3), and the Authority may not issue the revised rules in question before—
(a) that period of 14 days expires, or
(b) the Minister notifies the Authority that no direction under subsection (4) will be given in relation to the revised rules,
whichever is the sooner.
(6) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of—
(a) the issuing of the revised rules, and
(b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1).
(7) Notice under subsection (6) is to be given to such persons as the Authority considers appropriate.
(8) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.
(9) In this section “the Minister” has the meaning given by section 66EB.’.

James Gray: With this it will be convenient to discuss Government amendments 48, 50, 10, 12, 17, 24, 33 and 35.

Dan Rogerson: I will attempt to speak up, because I would hate to think that my contribution making the case for the Government amendments was not reaching all members of the Committee or other relevant interested parties. The amendments make minor changes to the provisions dealing with Ofwat’s powers to produce charging rules, to make them more consistent. New provisions will allow Ofwat to make minor or urgent changes to its rules without carrying out a consultation. Those provisions align Ofwat’s powers to make minor or urgent changes with its powers to produce codes.
A minor change might include a small change to contact details. Urgent changes may be necessary to protect customers, licensees, developers and others that are subject to any of the charges covered by the rules. An urgent change might, for example, address issues that arise relating to double charging, or where hidden costs are identified. Instead of consulting on a change that it considers minor or urgent, Ofwat will issue a notice giving the relevant Minister notification of its intention to make such a change to the rules. The Minister may, within 14 days, direct Ofwat not to make that change or state that he does not intend to issue such a direction. In the latter case, Ofwat may go ahead and make the change, and set out a notice of the change to the rules to persons with an interest.
Any changes considered urgent will expire at the end of six months following publication of the revised rules, to give Ofwat sufficient time to consult on making the change permanent, or to develop and consult on a replacement provision. It is important for Ofwat to be able to make some changes to its rules without having to carry out a statutory consultation every time a minor amendment is needed. We have provided the fast-track procedure for urgent changes so that Ofwat can immediately deal with serious issues that impact on customers’ bills or the competitiveness of licensees. I clarify that the provisions are specifically designed for minor or urgent changes. The ministerial check is a safeguard to ensure that the process is used only for changes that are minor or urgent.

Amendment 46 agreed to.

Amendments made: 116, in schedule 2,page109, leave out lines 30 to 39 and insert—
‘(1) The Minister may issue guidance as to the content of rules under section 66E.’.
Amendment 117,in schedule 2, page110,line1, leave out ‘review’ and insert ‘revise’.—(Dan Rogerson.)

Schedule 2, as amended, agreed to.

Clause 2  - The supply system of a water undertaker

Question proposed,That the clause stand part of the Bill.

Dan Rogerson: Clause 2 inserts into section 17B of the Water Industry Act 1991 new subsection (4A), which extends the definition of the water supply systems of English incumbent water companies and inset appointees to include reservoirs, treatment works and other storage facilities rather than only pipes and mains, as is currently the case. The current definition of a supply system covers the water mains and pipes downstream of a water treatment works as well as discrete non-potable supply systems. Extending the definition of supply systems will provide more opportunities for water supply licensees with wholesale authorisations to input water into the water network, which will increase the impact of the wholesale market reforms in the Bill.
In the water White Paper, we committed to extending new entrants’ access rights to undertakers’ treatment and storage systems to maximise their opportunities for providing efficient and innovative wholesale water supply. That will enable alternative suppliers to input water into any part of the network. For example, landowners or farmers with spare water will be able to apply for a licence to input water into the system, which can be used to supply their eligible premises, the premises of their customers or the premises of customers of other licensees.
The measure will allow firms to specialise in particular upstream activities. Extending competition in such a way provides an incentive for incumbent water companies to look at alternative supply options to expensive capital projects in meeting future demand. Those options might include working with local suppliers or purchasing supplies from neighbouring water companies. The current definition of a supply system will be retained for incumbent water companies and inset appointees based wholly or mainly in Wales. The clause is vital to ensure the effectiveness of our upstream reforms.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Schedule 3 agreed to.

Schedule 4  - Sewerage undertakers’ duties as regards sewerage licensees

Amendments made: 118,page117,line41 [Schedule 4], leave out ‘review’ and insert ‘revise’.
119, in schedule 4,page119,line22, at end insert—
( 00) publication of the charges that may be imposed.’.
120, in schedule 4,page120,line2, leave out ‘review’ and insert ‘revise’.
121,in schedule 4, page120,line3, at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 117L, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.
122,in schedule 4, page120,line40, leave out ‘under section 117I’.
123,in schedule 4,page121,line27, leave out ‘must’ and insert ‘may’.—(Dan Rogerson.)

Dan Rogerson: I beg to move amendment 124, in schedule 4,page123,line19, leave out ‘supply’ and insert ‘sewerage provision’.

James Gray: With this it will be convenient to discuss Government amendments 51, 3, 4, 5, 6, 7, 8, 36, 37, 102, 40, 41, 127 and 128.

Dan Rogerson: These are minor or technical corrections of drafting throughout the Bill, and I believe they are uncontroversial. Specifically, amendment 124 corrects an error as the supply relates to water but the Bill refers to sewage.
Amendment 51 is consequential on amendment 41 to clause 37 and commencement of schedule 5 by Welsh Ministers. Amendments 3 to 5 move the definition from new section 17FA of the Water Industry Act to new section 17FB.
Amendments 6 to 8 similarly move the definition for Ofwat from one paragraph to another in schedule 2 in the Water Services etc. (Scotland) Act 2005. In these cases, the references are moved to the correct parts of the legislation where the reference to these bodies occurs.
Amendment 36 is a minor drafting change to tidy up drafting, swapping the word “in” for the word “for”. Amendment 37 swaps the words “change” and “amend” to ensure consistency throughout the Bill.
Amendment 102 removes paragraphs that are unnecessary. Amendments 40 and 41 are consequential to the extension of clause 37 to water supply licensees and sewage licensees as well as water undertakers.
Amendment 127 is a minor drafting change to clarify which chapter is referred to, consistent with the drafting later in the schedule. Finally, amendment 128 repeals a reference to section 48 in section 47(1) as section 48 is repealed.

Schedule 4, as amended, agreed to.

Clause 5 ordered to stand part of the Bill.

Schedule 5  - Water supply and sewerage licensing changes applied as regards Wales

Dan Rogerson: I beg to move amendment 125, in schedule 5,page131,line13, at end insert—
In section 55 (supplies for non-domestic purposes), in subsection (1A)(b), the words from “or, in the case” to “that subsection” are repealed.’.

James Gray: With this it will be convenient to discuss Government amendments 129 and 42 to 44.

Dan Rogerson: Amendment 129 amends schedule 7 to the Bill to remove a reference to the power to set a minimum water usage threshold for premises in the area of incumbent water companies in England. It retains it for premises in areas of incumbents wholly or mainly in Wales.
Amendment 125 enables Welsh Ministers to later remove the reference in relation to premises in areas of incumbent water companies wholly or mainly in Wales. The main effect is that incumbent water companies will be obliged to make a non-domestic supply—that is, water that is used for things other than drinking, washing, cooking, and so on—to certain premises regardless of the water consumed on those premises. The incumbent does not have to do this if it would have an impact on existing or future obligations relating to domestic supplies.
Amendments 42, 43 and 44 are consistency and statute-tidying changes. Amendments 42 and 43 change the position of the reference to the Water Resources Act 1991 in clause 41 in consequence of amendment 44. Amendment 44 inserts a new subsection to clause 41 which repeals section 61A—Recovery of compensation from new licence-holder—of the Water Resources Act 1991. This is necessary because the compensation scheme has been removed by clause 41 to this Bill.

Amendment agreed to.

Amendments made: 49,in schedule 5, page133, leave out from ‘rules’ to end of line 41.
Amendment 50,in schedule 5, page134, at end insert—
36A (1) Section 117KA (rules under section 117I: minor or urgent revisions) (inserted by Schedule 4) is amended as follows.
(2) In subsections (3), (4) and (5)(b), for “the Secretary of State” there is substituted “the Minister”.
(3) After subsection (8) there is inserted—
(9) In this section “the Minister” has the meaning given by section 117K.”’.
Amendment 51,in schedule 5, page135, at end insert—
42A In section 207E (exercise of adjudication functions by other persons) (inserted by section37), in subsection (5), in paragraph (b) of the definition of “the Minister”—
(a) the “or” following sub-paragraph (i) is repealed;
(b) after sub-paragraph (ii) there is inserted “, or
(iii) in relation to a sewerage licensee using the sewerage system of such an undertaker (see section 17BA);”.’. —(Dan Rogerson.)

Schedule 5, as amended, agreed to.

Clause 6  - Arrangements with the Water Industry Commission for Scotland

Amendments made: 3, in clause6,page6,leave out lines 7 and 8.
Amendment 4, in clause6,page6,line43,at beginning insert ‘In this section—’.
Amendment 5, in clause6,page6,line46,at end insert—
‘“the Commission” means the Water Industry Commission for Scotland.’.--(Dan Rogerson.)

Clause 6, as amended, ordered to stand part of the Bill.

Clause 7  - Arrangements with the Water Services Regulation Authority

Amendments made: 6, in clause7,page7,leave out lines 33 and 34.
Amendment 7, in clause7,page8,line24,at beginning insert ‘In this paragraph—’.
Amendment 8, in clause7,page8,line28,at end insert—
‘“the Authority” means the Water Services Regulation Authority.’.—(Dan Rogerson.)

Clause 7, as amended, ordered to stand part of the Bill.

Clause 8  - Bulk supply of water by water undertakers

Dan Rogerson: I beg to move amendment 56, in clause8,page9,line23,at end insert—
‘(3A) Before making an order under subsection (3), the Authority must consult the appropriate agency.’.

James Gray: With this it will be convenient to discuss Government amendments 57 to 59, 61, 67 to 70 and 72.

Dan Rogerson: This group of amendments adds a requirement for Ofwat to consult either the Environment Agency or Natural Resources Wales where Ofwat orders a bulk supply agreement; varies or terminates a bulk supply agreement; orders a main connection agreement; or varies or terminates a main connection agreement. The Environment Agency will be consulted where the agreement is between incumbent water companies and inset appointees based wholly in England. Natural Resources Wales will be consulted where the agreement is between incumbent water companies and inset appointees based wholly in Wales. Both bodies should be consulted if one or more of the parties is based partly in England and partly in Wales.
Clauses 8 and 9 are an important part of a package of reforms to encourage more upstream competition in the water industry. The clauses introduce codes and charging rules better to regulate bulk supply and main connection agreements—the bulk transfer of water or raw sewage retrospectively between incumbent water companies and inset appointees.

George Hollingbery: This is a very important issue that needs to be carefully regulated by either the Welsh or the English body. Will the Minister be kind enough to put it on the record for us that if the Environment Agency’s and/or the Welsh body’s opinion was that this should not go ahead, he would expect the regulator to comply with that advice?

Dan Rogerson: My hon. Friend raised that matter during the evidence sessions. I understand that we need to have confidence in the concerned bodies. We want the Environment Agency and Natural Resources Wales to have every opportunity to contribute to the process. Ultimately, it would be a matter for the regulator to make a decision. According to witness statements given by the Environment Agency, it is confident that its views will have adequate weight when the issues are considered.
The policy intention—a subject close to my hon. Friend’s heart—is to increase resilience by enabling water companies to use water resources more flexibly and efficiently, as well as stimulating the development of a market—to keep the hon. Member for Dunfermline and West Fife happy—for treated and untreated waste water. It will also streamline negotiations between incumbent water companies and inset appointees in order to reduce undue delay to new development.
The Water Industry Act 1991 requires Ofwat to consult the Environment Agency when ordering, varying or terminating a bulk supply agreement or ordering a main connection agreement. This requirement was inadvertently missed out during the drafting of the Bill. In the meantime, Natural Resources Wales took over certain functions from the Environment Agency on 1 April 2013. Although the Bill provides for Ofwat to consult the appropriate agency when it issues codes under new section 40B or new section 140C, Ofwat is not under an absolute duty to issue codes or to include specific provisions in the codes. We therefore propose to add this further requirement to clarify the position beyond question. I hope that that goes some way to reassuring my hon. Friend.

Amendment 56 agreed to.

Amendments made: 57, in clause8,page10,line12,at end insert—
‘( ) In this section and section 40A “the appropriate agency”, in relation to a determination whether to make an order under subsection (3) or section 40A(1) which would result in, or which would vary or terminate, a bulk supply agreement, means—
(a) the Environment Agency, in a case where all parties to the bulk supply agreement are or would be—
(i) a water undertaker whose area is wholly in England, or
(ii) a person who would, if the person’s application for an appointment or variation is determined in accordance with the application, be such a water undertaker;
(b) the NRBW, in a case where all parties to the bulk supply agreement are or would be—
(i) a water undertaker whose area is wholly in Wales, or
(ii) a person who would, if the person’s application for an appointment or variation is determined in accordance with the application, be such a water undertaker;
(c) both the Environment Agency and the NRBW, in any other case.’.
Amendment 58, in clause8,page10,line22,at end insert—
‘(1A) Before making an order under subsection (1), the Authority must consult the appropriate agency.’.
Amendment 59, in clause8,page11,leave out lines 37 and 38.
Amendment 60, in clause8,page12,line3,leave out ‘review’ and insert ‘revise’.
Amendment 61, in clause8,page12,leave out lines 8 to 25.
Amendment 62, in clause8,page14,line6,leave out ‘specify’ and insert ‘make provision about’.
Amendment 63, in clause8,page14,line14,at end insert—
‘( ) publication of the charges that may be imposed.’.
Amendment 64, in clause8,page14,line27,leave out ‘review’ and insert ‘revise’.
Amendment 65, in clause8,page14,line28,at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 40H, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.
Amendment 66, in clause8,page15,line17,leave out ‘any’ and insert ‘the’.
Amendment 9, in clause8,page15,line27,leave out from ‘rules’ to end of line 28.
Amendment 10, in clause8,page16,line6,at end insert—
‘( ) This section is subject to section 40GA.
40GARules under section 40E: minor or urgent revisions
(1) This section applies if the Authority proposes to issue revised rules under section 40E and, in the view of the Authority, the revision or each of the revisions proposed to be made is—
(a) a revision for which consultation is unnecessary, or
(b) a revision that it is necessary or desirable to make without delay.
(2) Section 40G does not apply to the proposed revised rules.
(3) Before issuing the revised rules, the Authority must give notice to the Minister of its intention to issue revised rules.
(4) Before the revised rules are issued, the Minister may direct the Authority not to issue the revised rules.
(5) A direction under subsection (4) must be given within the period of 14 days beginning with the day after the day on which notice is given under subsection (3), and the Authority may not issue the revised rules in question before—
(a) that period of 14 days expires, or
(b) the Minister notifies the Authority that no direction under subsection (4) will be given in relation to the revised rules,
whichever is the sooner.
(6) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of—
(a) the issuing of the revised rules, and
(b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1).
(7) Notice under subsection (6) is to be given to such persons as the Authority considers appropriate.
(8) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.
(9) In this section “the Minister” has the meaning given by section 40G.’.—(Dan Rogerson.)

Clause 8, as amended, ordered to stand part of the Bill.

Clause 9  - Main connections into sewerage systems

Amendments made: 67, in clause9,page17,line31,at end insert—
‘(3A) Before making an order under subsection (3), the Authority must consult the appropriate agency.’.
Amendment 68, in clause9,page18,line25,at end insert—
‘(8A) In this section and section 110B “the appropriate agency”, in relation to a determination whether to make an order under subsection (3) or section 110B(1) which would result in, or which would vary or terminate, a main connection agreement, means—
(a) the Environment Agency, in a case where all parties to the main connection agreement are or would be—
(i) a sewerage undertaker whose area is wholly in England, or
(ii) a person who would, if the person’s application for an appointment or variation is determined in accordance with the application, be such a sewerage undertaker;
(b) the NRBW, in a case where all parties to the main connection agreement are or would be—
(i) a sewerage undertaker whose area is wholly in Wales, or
(ii) a person who would, if the person’s application for an appointment or variation is determined in accordance with the application, be such a sewerage undertaker;
(c) both the Environment Agency and the NRBW, in any other case.’.
Amendment 69, in clause9,page18,line40,at end insert—
‘(1A) Before making an order under subsection (1), the Authority must consult the appropriate agency.’.
Amendment 70, in clause9,page20,leave out lines 15 and 16.
Amendment 71, in clause9,page20,line27,leave out ‘review’ and insert ‘revise’.
Amendment 72, in clause9,page20,line32,leave out from beginning to end of line 2 on page 21.
Amendment 73, in clause9,page21,line5,leave out ‘code proposed to be issued’ and insert ‘proposed code under section 110C’.
Amendment 74, in clause9,page22,line34,leave out ‘specify’ and insert ‘make provision about’.
Amendment 75, in clause9,page22,line42,at end insert—
‘( ) publication of the charges that may be imposed.’.
Amendment 76, in clause9,page23,line9,leave out ‘review’ and insert ‘revise’.
Amendment 77, in clause9,page23,line10,at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 110I, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.
Amendment 78, in clause9,page23,line45,leave out ‘any’ and insert ‘the’.
Amendment 11, in clause9,page24,line10,leave out from ‘rules’ to end of line 11.
Amendment 12, in clause9,page24,line41,at end insert—
‘( ) This section is subject to section 110HA.
110HARules under section 110F: minor or urgent revisions
(1) This section applies if the Authority proposes to issue revised rules under section 110F and, in the view of the Authority, the revision or each of the revisions proposed to be made is—
(a) a revision for which consultation is unnecessary, or
(b) a revision that it is necessary or desirable to make without delay.
(2) Section 110H does not apply to the proposed revised rules.
(3) Before issuing the revised rules, the Authority must give notice to the Minister of its intention to issue revised rules.
(4) Before the revised rules are issued, the Minister may direct the Authority not to issue the revised rules.
(5) A direction under subsection (4) must be given within the period of 14 days beginning with the day after the day on which notice is given under subsection (3), and the Authority may not issue the revised rules in question before—
(a) that period of 14 days expires, or
(b) the Minister notifies the Authority that no direction under subsection (4) will be given in relation to the revised rules,
whichever is the sooner.
(6) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of—
(a) the issuing of the revised rules, and
(b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1).
(7) Notice under subsection (6) is to be given to such persons as the Authority considers appropriate.
(8) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.
(9) In this section “the Minister” has the meaning given by section 110H.’.
Amendment 79, in clause9,page25,line2,leave out from ‘Ministers’ to end of line 3.
Amendment 80, in clause9,page25,line4,leave out from ‘State’ to end of line 5.—(Dan Rogerson.)

Clause 9, as amended, ordered to stand part of the Bill.

Clause 10  - Agreements by water undertakers to adopt infrastructure

Amendments made: 81, in clause10,page30,line8,leave out ‘review’ and insert ‘revise’.
Amendment 82, in clause10,page31,line29,leave out ‘specify’ and insert ‘make provision about’.—(Dan Rogerson.)

Dan Rogerson: I beg to move amendment 13, in clause10,page31,line37,at end insert—
‘(2A) The rules may require a water undertaker, upon declaring a water main or service pipe to be vested in the undertaker in accordance with a section 51A agreement, to pay to the other party to the agreement an amount (which may be nil) determined in accordance with the rules.
(2B) Rules made by virtue of subsection (2A) may, in particular, provide for the determination to take into account—
(a) revenue that might be derived from the water main or service pipe in question;
(b) costs that might have been incurred in providing such a water main or service pipe.
(2C) The rules may also make provision as to—
(a) the amount of security that may be required by a water undertaker for the purposes of any charges imposed by the water undertaker under a section 51A agreement;
(b) the type of security that may be required;
(c) the payment of interest on a sum deposited with a water undertaker by way of security.’.

James Gray: With this it will be convenient to discuss Government amendment 20.

Dan Rogerson: Clauses 10 and 11 are concerned with agreements made between developers and incumbent water companies about the adoption of water infrastructure and sewer infrastructure. The clauses will insert new sections to allow Ofwat to create rules about charges in relation to the agreements. The amendments will allow the asset payments, which are made by an incumbent water company to a developer upon the vesting of a self-laid water main, to be included in the rules about charges. They will also allow the asset payments that are made by an incumbent water company to a developer upon the vesting of self-laid sewer, to be included in the rules about charges. They will provide clarity about the process and will allow the developer and the water company to know what to expect.

Amendment 13 agreed to.

Amendments made: 83, in clause10,page31,line37,at end insert—
( ) publication of the charges that may be imposed.’.
Amendment 14, in clause10,page32,line1,leave out ‘A code’ and insert ‘The rules’.
Amendment 84, in clause10,page32,line3,leave out ‘review’ and insert ‘revise’.
Amendment 85, in clause10,page32,line4,at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 51CF, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.
Amendment 86, in clause10,page32,line10,leave out ‘any’ and insert ‘the’.
Amendment 15, in clause10,page32,line18,at end insert—
‘( ) The Authority must specify the period (“the consultation period”) within which the relevant persons may make representations about the proposed rules.’.
Amendment 16, in clause10,page32,line20,at end insert—
‘(4) Before rules under section 51CD prepared by the Authority are issued, the Minister may direct the Authority not to issue the rules.
(5) In subsection (4) “the Minister” means—
(a) the Secretary of State, so far as the rules relate to section 51A agreements for the vesting of water mains or service pipes in water undertakers whose areas are wholly or mainly in England;
(b) the Welsh Ministers, so far as the rules relate to section 51A agreements for the vesting of water mains or service pipes in water undertakers whose areas are wholly or mainly in Wales.
(6) A direction under subsection (4) must be given within the period of 28 days beginning with the day after the end of the consultation period, and rules may not be issued before that period of 28 days has expired.’.
Amendment 17, in clause10,page32,line20,at end insert—
‘( ) This section is subject to section 51CEA.
51CEARules under section 51CD: minor or urgent revisions
(1) This section applies if the Authority proposes to issue revised rules under section 51CD and, in the view of the Authority, the revision or each of the revisions proposed to be made is—
(a) a revision for which consultation is unnecessary, or
(b) a revision that it is necessary or desirable to make without delay.
(2) Section 51CE does not apply to the proposed revised rules.
(3) Before issuing the revised rules, the Authority must give notice to the Minister of its intention to issue revised rules.
(4) Before the revised rules are issued, the Minister may direct the Authority not to issue the revised rules.
(5) A direction under subsection (4) must be given within the period of 14 days beginning with the day after the day on which notice is given under subsection (3), and the Authority may not issue the revised rules in question before—
(a) that period of 14 days expires, or
(b) the Minister notifies the Authority that no direction under subsection (4) will be given in relation to the revised rules,
whichever is the sooner.
(6) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of—
(a) the issuing of the revised rules, and
(b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1).
(7) Notice under subsection (6) is to be given to such persons as the Authority considers appropriate.
(8) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.
(9) In this section “the Minister” has the meaning given by section 51CE.’.
Amendment 18, in clause10,page32,leave out lines 37 to 41 and insert—
‘(7) In this section “the Minister” means—
(a) the Secretary of State, so far as the guidance is as to the content of rules relating to section 51A agreements for the vesting of water mains or service pipes in water undertakers whose areas are wholly or mainly in England;
(b) the Welsh Ministers, so far as the guidance is as to the content of rules relating to section 51A agreements for the vesting of water mains or service pipes in water undertakers whose areas are wholly or mainly in Wales.’.—(Dan Rogerson.)

Clause 10, as amended, ordered to stand part of the Bill.

Clause 11  - Agreements by sewerage undertakers to adopt infrastructure

Amendments made: 87, in clause11,page36,line45,leave out ‘review’ and insert ‘revise’.
Amendment 19, in clause11,page37,leave out lines 17 to 21 and insert—
‘(5) In this section “the Minister” means—
(a) the Secretary of State, so far as the code relates to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in England;
(b) the Welsh Ministers, so far as the code relates to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in Wales.’.
Amendment 88, in clause11,page38,line13,leave out ‘specify’ and insert ‘make provision about’.
Amendment 89, in clause11,page38,line21,at end insert—
‘( ) publication of the charges that may be imposed.’.
Amendment 20, in clause11,page38,line21,at end insert—
‘(2A) The rules may require a sewerage undertaker, upon declaring a sewer, drain or sewage disposal works to be vested in the undertaker in accordance with a section 104 agreement, to pay to other party to the agreement an amount (which may be nil) determined in accordance with the rules.
(2B) Rules made by virtue of subsection (2A) may, in particular, provide for the determination to take into account—
(a) revenue that might be derived from the sewer, drain or sewage disposal works in question;
(b) costs that might have been incurred in providing such a sewer, drain or sewage disposal works.
(2C) The rules may also make provision as to—
(a) the amount of security that may be required by a sewerage undertaker for the purposes of any charges imposed by the sewerage undertaker under a section 104 agreement;
(b) the type of security that may be required;
(c) the payment of interest on a sum deposited with a sewerage undertaker by way of security.’.
Amendment 21, in clause11,page38,line29,leave out ‘A code’ and insert ‘The rules’.
Amendment 90, in clause11,page38,line31,leave out ‘review’ and insert ‘revise’.
Amendment 91, in clause11,page38,line32,at end insert—
‘( ) The Authority must issue revised rules if—
(a) guidance is issued under section 105ZH, and
(b) the Authority, having regard to that guidance, considers that it is appropriate to revise the rules.’.
Amendment 92, in clause11,page38,line38,leave out ‘any’ and insert ‘the’.
Amendment 22, in clause11,page39,line1,at end insert—
‘( ) The Authority must specify the period (“the consultation period”) within which the relevant persons may make representations about the proposed rules.’.
Amendment 23, in clause11,page39,line3,at end insert—
‘(4) Before rules under section 105ZF prepared by the Authority are issued, the Minister may direct the Authority not to issue the rules.
(5) In subsection (4) “the Minister” means—
(a) the Secretary of State, so far as the rules relate to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in England;
(b) the Welsh Ministers, so far as the rules relate to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in Wales.
(6) A direction under subsection (4) must be given within the period of 28 days beginning with the day after the end of the consultation period, and rules may not be issued before that period of 28 days has expired.’.
Amendment 24, in clause11,page39,line3,at end insert—
‘( ) This section is subject to section 105ZGA.
105ZGARules under section 105ZF: minor or urgent revisions
(1) This section applies if the Authority proposes to issue revised rules under section 105ZF and, in the view of the Authority, the revision or each of the revisions proposed to be made is—
(a) a revision for which consultation is unnecessary, or
(b) a revision that it is necessary or desirable to make without delay.
(2) Section 105ZG does not apply to the proposed revised rules.
(3) Before issuing the revised rules, the Authority must give notice to the Minister of its intention to issue revised rules.
(4) Before the revised rules are issued, the Minister may direct the Authority not to issue the revised rules.
(5) A direction under subsection (4) must be given within the period of 14 days beginning with the day after the day on which notice is given under subsection (3), and the Authority may not issue the revised rules in question before—
(a) that period of 14 days expires, or
(b) the Minister notifies the Authority that no direction under subsection (4) will be given in relation to the revised rules,
whichever is the sooner.
(6) Once the Authority has issued the revised rules, it must give notice as soon as reasonably practicable of—
(a) the issuing of the revised rules, and
(b) as regards each revision contained in them, whether in the view of the Authority the revision falls within paragraph (a) or (b) of subsection (1).
(7) Notice under subsection (6) is to be given to such persons as the Authority considers appropriate.
(8) Unless the Authority gives notice that a revision in revised rules is in the view of the Authority a revision falling within subsection (1)(a), the revision ceases to have effect at the end of the period of six months beginning with the day after that on which the revised rules are issued.
(9) In this section “the Minister” has the meaning given by section 105ZG.’.
Amendment 25, in clause11,page39,leave out lines 20 to 24 and insert—
‘(7) In this section “the Minister” means—
(a) the Secretary of State, so far as the guidance is as to the content of rules relating to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in England;
(b) the Welsh Ministers, so far as the guidance is as to the content of rules relating to section 104 agreements for the vesting of sewers, drains or sewage disposal works in sewerage undertakers whose areas are wholly or mainly in Wales.’.—(Dan Rogerson.)

Clause 11, as amended, ordered to stand part of the Bill.

Clause 12  - Arrangements for water undertakers to take water from other persons

Thomas Docherty: I beg to move amendment 133, in clause12,page40,line11,after ‘Ministers’, insert
‘and the Canal and River Trust,’.

James Gray: With this it will be convenient to discuss amendment 134, in clause12,page42,line21,at end insert—
‘(ca) the Canal and River Trust,’.

Thomas Docherty: I do not intend to speak for long. I am conscious of the need to make progress, particularly given the weather conditions we are suffering today.
The Canal & River Trust is a relatively new charity. Members who served on the Environment, Food and Rural Affairs Select Committee will recall that it took a close interest in the establishment of the trust. It is responsible for something like 2,000 miles of waterways and canals. I will work on the assumption that all hon. Members have seen the correspondence circulated by my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller) earlier today.
The trust is the largest private supplier of water to water undertakers. Water sales to the water companies provide something in the region of just shy of £3 million to the trust each year, as well as providing a public need. The trust believes that the Bill in its current form will have a detrimental effect on the its existing and future water sales agreements. I hope that when the Minister responds, he can set out the Government’s position on that.
To be specific, as I understand it, the Bill as currently drafted will have a retrospective impact on existing agreements, although I suspect that that issue may be dealt with when the Minister explains his amendments. However, the trust is also concerned about the potential for unfair interference in its future agreements with water suppliers.
The amendment is technical, and would make the trust a consultee to ensure that its voice is heard when the regulators and the Government are determining future supply arrangements. We think that that is crucial given the trust’s strategic nature. It would be ironic if the Government, having established the Canal & River Trust just 18 months ago, were to inadvertently damage its ability to operate. I would very much welcome the Minister’s thoughts on that.

Dan Rogerson: I welcome the spirit in which the hon. Gentleman made his remarks. Indeed, I would like to express my gratitude to a number of Members from all parties for being happy to discuss with me their concerns about the issue. As the hon. Gentleman pointed out, I met with the Chair of the Environmental Audit Committee, the hon. Member for Stoke-on-Trent North (Joan Walley), and the Chair of the Science and Technology Committee, the hon. Member for Ellesmere Port and Neston. Both of them have an interest in the issue that I think reflects constituency realities as well as their overarching interest in the future of the Canal & River Trust. I also met with a number of other hon. Members, including my predecessor as Minister, the hon. Member for Newbury, who is keen to ensure that we get things right on this issue.

Thomas Docherty: My hon. Friend the Member for Ellesmere Port and Neston has asked me to extend an invitation to you, Mr Gray, and to the Committee to visit the museum in his constituency.

James Gray: That is extraordinarily kind, but I fear I may be a little busy that day.

Neil Parish: We have not heard a date yet.

Dan Rogerson: The Committee can assume that it has a standing invitation to that fine institution, for which we are all very grateful.
It may help if I set out a little of the background to clause 12 and relate that to the issue that the hon. Gentleman is seeking to address with his amendments. Clause 12 gives Ministers the power to make regulations concerning the supply of water for public supply by a person other than an incumbent water company. The regulations must be widely consulted on and approved by Parliament. The measure is designed to create a regulated market in which potential suppliers of water that are not incumbent water companies, such as farmers with on-farm reservoirs, are empowered—

Neil Parish: To take as much water as they like.

Dan Rogerson: My hon. Friend expresses a view on behalf of the farming community, which I think was uttered tongue in cheek.
Potential suppliers of water will be empowered to sell water to the public supply, building resilience. We firmly believe that the Bill presents valuable opportunities for the Canal & River Trust in many areas.
We are aware of the concerns that the Canal & River Trust had about clause 12, and to address them we have tabled amendments to exclude historic agreements from the scope of future regulations. For the market to work most effectively, we need to create a level playing field where new water entrants have clear expectations, rights and responsibilities, transparent pricing and fair rules. Everyone must be subject to the same rules.
It would not be appropriate for regulations to confer functions on the Canal & River Trust. In line with our commitment in the Bill to a level playing field, we do not want to benefit any one party above any other. Similarly, it is unnecessary to make the Canal & River Trust a statutory consultee. Like many other stakeholders, the trust is an important stakeholder in the process of developing clause 12 and any future regulations made under it. I am happy to commit to working closely with the trust to ensure that it is fully involved in the process of developing the detail of the regulations and market codes. Please be assured that we intend the regulations to be proportionate, fair and acceptable to all parties, including the Canal & River Trust, and as clear and easy to use as possible.
Regarding the concerns further raised in writing by the hon. Member for Ellesmere Port and Neston, it is important to put on the record that we understand the Canal & River Trust’s concerns and that we are in ongoing dialogue. The Chief Secretary was at the meeting with the hon. Member for Dunfermline and West Fife which I attended and it was a very helpful discussion. We will continue to work with the trust on the detail of the regulations and market codes under clause 12.
Our intention is not to cause harm to the financing of the trust through this clause. It is very much against our policy aims, as the hon. Gentleman assumes. I can make clear that our objectives with the clause are as I have described: a level playing field for all participants, but one that is transparent and provides clarity, which protects suppliers and new entrants. Renewals of existing agreements can be included within the scope of the regulations and the Government’s amendments make that absolutely clear. I hope in that spirit, and in the helpfulness which the hon. Gentleman extends, he will feel willing not to press his amendment.

Thomas Docherty: I am most grateful for that useful response. With the Committee’s permission, I will withdraw the amendment. I am satisfied with the spirit in which it is offered and will continue to consult with my hon. Friend the Member for Ellesmere Port and Neston. If we feel dissatisfied, we obviously reserve the right to bring the matter back on Report, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Dan Rogerson: I beg to move amendment 26, in clause12,page40,line15,at end insert—
‘(d) make provision excepting water supply agreements of such description as the regulations may specify from the effect of—
(i) any provision of the regulations, or
(ii) any provision of the codes or rules made under the regulations.’.

James Gray: With this it will be convenient to discuss Government amendment 27.

Dan Rogerson: This clause gives Ministers powers to make regulations concerning the supply of water for public supply by a person other than an incumbent water company. It is designed to create a regulated market in which potential suppliers of water who are not incumbent water companies, as we have set out, are empowered to sell water to the public supply, building on resilience.
Our amendments make it clear that future agreements, for example variations of historic agreements, could also be excluded from the scope of the future regulations where it is considered appropriate. We believe this has always been possible, but we are making it clear in the Bill.

Amendment 26 agreed to.

Amendments made: 27, in clause12,page40,line26,at end insert—
‘(4) Nothing in provision made under this Chapter affects a water supply agreement made before any regulations under this section first come into force.’.
Amendment 28, in clause12,page41,line33,leave out ‘subsection’ and insert ‘subsections (2A) and’.
Amendment 29, in clause12,page41,line45,leave out ‘to require rules to be revised or’.
Amendment 30, in clause12,page41,line46,leave out ‘or revised’.
Amendment 31, in clause12,page41,line46,at end insert—
‘(2A) Regulations conferring a power on the Minister as described in subsection (1)(f) must provide that—
(a) if the power is exercised to impose a requirement in respect of agreements for such supplies of water as are referred to in paragraph (a) or (b) of the definition of “the Minister” in section 66M(3), it may not be exercised again in respect of such supplies of water as are referred to in that paragraph, and
(b) if the power to impose a requirement in respect of agreements for such supplies of water as are referred to in paragraph (a) or (b) of the definition of “the Minister” in section 66M(3) is not exercised on the first occasion on which it may be so exercised, it may not be exercised in respect of such agreements as are referred to in that paragraph on a later occasion.’.—(Dan Rogerson.)

Clause 12, as amended, ordered to stand part of the Bill.

Clauses 13 to 15 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(John Penrose.)

Adjourned till Tuesday 10 December at five minutes to Nine o’clock.
Written evidence reported to the House
WB 07 Scottish Flood Forum
WB 08 NFU
WB 09 CLA
WB 10 All-Party Parliamentary Fire Safety & Rescue Group
WB 11 Thames Water